The Fed chair has saved Trump from his worst instincts but failed to do so for Biden.<\/b>
\nWhen historians eventually study whom Donald Trump treated worse\u2014his enemies or his friends and loyal servants\u2014the sad case of Jerome Powell will weigh heavily on the scales.
Not only did Trump discharge the usual fusillade of schoolyard insults and infantile tantrums at the man he appointed chair of the Federal Reserve Board; as the world now knows, Trump\u2019s Department of Justice has also opened a spurious criminal investigation of Powell for allegedly making false statements to Congress about a cost overrun in a construction project.
We have seen Trump\u2019s particular style of gratitude before. John Bolton, his former national security adviser turned critic, is living under a politically hatched indictment, and Mike Pence, his first-term vice president, was exposed to a violent mob for executing his constitutionally mandated duties.
Yet Powell\u2019s case is distinct because he\u2014more than any other top-level civil servant\u2014helped secure the most significant policy triumph of Trump\u2019s career. He even played a crucial part in Trump\u2019s eventual reelection.
During the Obama years, after the mortgage bust, Ben Bernanke and the Fed kept the short-term interest rate close to zero, setting the stage for Powell\u2019s role in the Trump economy. Free money was great for stock-market investors, but Main Street\u2019s recovery was torpid.
In 2018, when Powell took office, a year into Trump\u2019s first term, the federal funds rate was still only 1.5 percent. Under Powell, the Fed gradually hiked the rate to 2.5 percent and then pulled back. Trump squawked and mused about firing Powell.
Trump\u2019s carping notwithstanding, economic growth spiked during Powell\u2019s first year to 3 percent, the highest since the mid-2000s, and wages rose at the fastest rate since before the financial crisis. Growth remained a still-strong 2.6 percent in 2019. And thanks to Powell\u2019s refusal to cave to the president, inflation remained muted. In other words, wage gains translated to real gains in living standards. Inequality, as measured by the Fed Survey of Consumer Finances, actually contracted. By any fair measure, economic performance during the first three years of Trump 1.0 was good, and the Fed chief deserved credit\u2014which never emanated from the White House.
Powell\u2019s record during Joe Biden\u2019s presidency was far more mixed. When the pandemic shut down the economy during 2020, Powell cut the federal funds rate to effectively zero. And left it there.
Biden, inaugurated nine months after the COVID recession ended, enacted a massive deficit-spending program. He styled himself a second version of Franklin D. Roosevelt. Just as Trump had pursued a highly stimulative program (particularly with his tax cut), so did Biden. The purposes were different, but both added to inflationary pressures.
Under Biden, Powell did not experience overt pressure from the White House, but there was soft pressure on the Fed not to choke off the recovery, and to align with the executive during a crisis. Both Powell and the Biden White House misread the COVID recession as similar to the 2008 mortgage meltdown. In a financial crisis, recoveries are typically slow. People\u2019s assets are underwater and stimulus is needed for a protracted period. During the COVID recession, once people exited the initial lockdown, the crisis was over.
When COVID struck, Powell kept the overnight interest rate at or below 1 percent for more than two years, until June 2022. By then, the annualized inflation rate had hit 9.1 percent, the highest in 40 years.
Powell then became serious about fighting inflation and eventually brought it under control, but the damage was done. In effect, Powell had saved Trump from his worst instincts but failed to do so for Biden.
The statistic known as \u201creal median household income\u201d vividly contrasts what happened to the typical family\u2019s living standard during each presidential term, after adjusting for inflation. During Trump\u2019s first term, it rose 10 percent before COVID and 8.2 percent overall. Under Biden, it rose 2.6 percent.
When Trump ran for reelection in 2020\u2014before there was even a vaccine for COVID\u2014the pandemic recession was on voters\u2019 minds. But four years later, when voters told pollsters that the economy had been better under Trump than under Biden, median household income is what they were remembering, even if that\u2019s not how they articulated it.
Inflation was probably the greatest factor in Trump\u2019s defeat of Kamala Harris. Trump and Biden were both reckless deficit spenders, but thanks to Powell\u2019s tougher stance against inflation, Trump\u2019s economy performed better, and that secured his political comeback.
Trump\u2019s response to this good fortune has been to attack the independence of the Fed and of the Bureau of Labor Statistics, the agency that collects much of the data on which the Fed relies. Toward Powell, he has been vindictive (for what, exactly?) and mean-spirited.
Trump wants Powell to lower rates, just as the Fed kept them low under Biden. This would risk repeating the Biden-era inflation that Trump campaigned against. Does this make sense? Not to me, either.<\/p>\n