When Donald Trump raised the prospect last week of having "a say" in Federal Reserve actions, he set off a debate between the two presidential campaigns that elevated the central bank into a key 2024 campaign issue.
First, Vice President Kamala Harris responded she would "never interfere." Then, JD Vance doubled down on the idea even as economic experts warned that political interference in monetary policy is a bad idea.
Trump's running mate said, in a CNN interview, that the former president had said something "really important and actually profound" and that monetary policy "should fundamentally be a political decision."
The back-and-forth continued this week, with Charles Lutvak, a Harris-Walz campaign spokesperson, telling Yahoo Finance Tuesday in response to Vance's comments that "Donald Trump took the wheel of our economy and drove it off a cliff, and if he gets another chance, he'll be even worse."
This focus on the Fed also comes ahead of a speech Friday in Raleigh, N.C., where Harris, according to a campaign official, will unveil an economic plan focused on lowering costs and the issue of corporate "price-gouging."
Economic warnings
The issue was first elevated last Thursday in a brief comment about 58 minutes into a press conference Trump gave at his Mar-a-Lago estate.
The former president offered, in response to a question about interest rates and the prospects of a soft landing for the US economy, "I feel the president should have at least a say in there, yeah, I feel that strongly."
"I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman," he added.
Harris herself soon responded, telling reporters Saturday that she disagrees and that "the Fed is an independent entity, and as president, I would never interfere in the decisions that the Fed makes."
Then on Sunday the debate continued with the airing of the Vance CNN interview where he added: "Agree or disagree, we should have America's elected leaders having input about the most important decisions confronting our country."
It's an idea that at least some economists and financial leaders indeed appear to disagree strongly with.
"Any calls for the president to have a say in setting interest rates, as we heard last week, are way off base," posted Mark Zandi of Moody's Analytics.
He said that the historical record showed political interference in monetary policy tends to lead to a diminished economy.
"I think if you look around the world's economies and you see where Fed central banks are independent and operate freely, they tend to fare better than the ones that don't," Bank of America (BAC) CEO Brian Moynihan added on CBS over the weekend.
An independent central bank, Moynihan added, is "kind of the American way."
Read more: Fed predictions for 2024: What experts say about the possibility of a rate cut
The Biden White House has often highlighted Fed independence as a way to send a message to Wall Street that a return of Trump to the Oval Office could spook markets.
Multiple other economists have spoken out in recent days to suggest that political interference in monetary policy — especially in an election year — could have negative effects on the economy.
Some of Trump's defenders, including former adviser Stephen Moore, have responded by suggesting "Washington and Wall Street are hyperventilating" over the comments while suggesting price rules should instead be used to set interest rates.
But allies of former President Trump have also floated a series of ideas that could undercut an independent Fed, ranging from firing Federal Reserve Chair Jerome Powell to the plan first reported in the Wall Street Journal that has the president himself playing a role in setting interest rates.
Trump has also previously said he thinks he has the authority to fire the Fed chair, though some legal experts disagree.
Criticisms of Powell ahead of a crucial rate decision
Trump last week offered some new criticism of Powell, saying he and his colleagues have "gotten it wrong a lot."
"He's tending to be a little bit late on things. He gets a little bit too early and a little bit too late."
Harris didn't critique Powell this past weekend, saying "we'll see what the decisions they make next and I hear about them about the same time you do."
The political glare on Powell is likely to only increase with the central bank seemingly poised to cut rates at its next meeting on Sept. 17-18 as long as inflation continues to moderate.
Just this week, US producer prices increased less than expected in more evidence of declining inflation with interest rate traders now projecting some levels of cuts in September as a virtual certainty.
But a September rate cut, if it happens, could cause political criticism from Trump and other Republicans who will be sure to cast the move as caving to election year pressure.
In an interview with Bloomberg published earlier this month, the former president again reiterated that central bank officials should not ease monetary policy before the November election.
"It's something that they know they shouldn't be doing," Trump said.
Ben Werschkul is Washington correspondent for Yahoo Finance.
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