Trump Faces a Stubborn Opponent in Fed’s Economic Experts

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JACKSON, Wyo. — President Trump characterizes himself as a master deal maker who gets what he wants. But as he tries to pressure the Federal Reserve to lower interest rates, he is contending with a powerful opponent: technocrats.

The Fed lowered borrowing costs in July amid mounting trade uncertainties, but it has refused to promise the kind of aggressive rate-cutting campaign that Mr. Trump wants. The central bank’s unwillingness to bend to the White House’s wishes has frustrated Mr. Trump, who implied on Friday that the Fed chair he appointed, Jerome H. Powell, was America’s enemy.

But as central bankers and top economists gathered this weekend in Jackson, Wyo., for their annual conference, there was no indication that monetary policy thinking was inching any closer to Mr. Trump’s — and there were many signs that officials and top economists were closing ranks to protect Mr. Powell and the institution he leads as it came under nonstop attack.

Fed officials are economists and businesspeople who have pledged themselves, with almost religious zeal, to a set of twin goals: full employment and stable inflation. They are focusing on those mandates as they try to protect themselves — and the central bank — from being drawn into the political maw.

“When you have the privilege of working for an institution as honorable as the Federal Reserve, you have to take on the challenges that that imposes on you,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, said on Friday in a CNBC interview when asked about Mr. Trump’s attacks.

Mr. Powell often says that the Fed may make mistakes, but he maintains that it is “not going to make mistakes of character or integrity.”

The Fed’s rationale for ignoring Mr. Trump’s pressure campaign is grounded in cold equations. Years of academic research and history show that nations that allow politics to guide interest rates risk more rapid inflation and are prone to painful boom-and-bust cycles. Most of the economics profession sees a monetary policy system free of political influence as an essential precondition for stable growth.

While the Fed is prepared to act to sustain the economic expansion, officials continue to say that the American economy remains strong, with unemployment low and consumer spending holding up, suggesting they are in no rush to usher in the kind of big cut Mr. Trump wants. Policymakers were sharply divided when they voted to cut interest rates for the first time in a decade in late July, according to newly released minutes from a recent Fed meeting.

Mr. Trump, who as a candidate accused the Fed of keeping rates low to benefit President Barack Obama, has increasingly pressed the central bank to support executive branch priorities. The president, who is waging several trade fights at once, wants the Fed to act as a defensive shield and help to prop up growth and exports. He has posted more than 20 Fed-related comments on Twitter so far this month, averaging about one a day.

If Mr. Trump gambles on that idea — escalating the trade war in ways that further stoke uncertainty and damage the economy, confident that the Fed will clean up any mess — he may create a growth slowdown that the Fed has little ability to offset.

“While monetary policy is a powerful tool that works to support consumer spending, business investment and public confidence, it cannot provide a settled rule book for international trade,” Mr. Powell said in a speech on Friday.

As his criticism takes on a sharper edge, monetary policymakers are prepared to protect Mr. Powell.

Mr. Trump has previously explored the possibility of firing or demoting Mr. Powell, and on Friday he told reporters that he would welcome the Fed chair’s resignation.

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CreditAmber Baesler/Associated Press

“Do I want him to resign? Let me put it this way: If he did, I wouldn’t stop him,” the president said, speaking on the White House lawn.

“I don’t think he’s much of a chess player. But, I’ve got him, so, you know, that’s what I have,” he said.

It is unclear whether Mr. Trump has the legal authority to demote Mr. Powell, who was confirmed by the Senate to a four-year term as chair. Mr. Powell’s term as a governor does not expire until 2028.

If Mr. Trump did try to strip Mr. Powell of his title, the currently 10-member Federal Open Market Committee — which sets interest rates and selects its own chair — might elect him as its leader, one Fed official said on background.

That would create an unprecedented power divide, with Mr. Trump’s new nominee serving as chair of the Board of Governors, assuming that person was confirmed by the Senate, and Mr. Powell was heading the policy-setting committee.

Even if Mr. Trump makes no attempt to fire or demote Mr. Powell, his continuing assaults on the Fed, combined with his aggressive trade fights, have current and former policymakers on edge.

“We are in a system in which things are getting worse day by day, and it’s not a service to anybody, at least privately, to not focus on what the key problems are — and they would be the behavior of the United States, unfortunately,” Stanley Fischer, a former Federal Reserve vice chairman appointed by Mr. Obama, said at the event.

Mr. Trump’s trade fights could ultimately prompt the Fed to give the president what he wants in the form of another rate cut if the economy further weakens. And the Fed could lose the appearance of independence as it lowers borrowing costs. Some share of onlookers will see any moves, which come at a time of low unemployment and strong consumer spending, as a capitulation to the president.

Officials have left the door open to future cuts but remain noncommittal about when they might come or how big they might be, couching their plans in terms of their employment and inflation goals.

“Our challenge now is to do what monetary policy can do to sustain the expansion,” Mr. Powell said in a speech on Friday.

At this weekend’s conference, Fed officials seemed hopeful that the world could return to its pre-Trump normal, when the White House largely avoided talking about the Fed.

In remarks at the start of the Jackson Hole symposium, Esther George, its host and the president of the Federal Reserve Bank of Kansas City, gave a speech on humans and wildlife in the national park where the conference was held that seemed like it might parallel the tension between politicians and monetary policymakers.

“Things get a little more interesting” when habitats overlap, she said, but things ultimately get resolved, “typically with the retreat of the intruder.”

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