President Trump is continuing to bash Federal Reserve Chairman Jerome Powell in a push to get him to cut rates. In a Truth Social post, Trump called the Fed chair "Mr. Too Late, a major loser." In the video above, former Federal Reserve Bank of Richmond president and GMU Mercatus Center senior affiliated scholar Jeffrey Lacker discusses the impact of those comments and what has happened in the past when the White House has interfered with the central bank.
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President Trump again called on Fed Chair Jerome Powell to cut interest rates after threatening to oust the Federal Reserve chairman last week. For more on the latest tensions between the White House and Chair Powell and how this could play out, let's welcome in Jeffrey Lacker, former Federal Reserve Bank of Richmond president and GMU Mercatus Center senior affiliated scholar. Jeffrey, thank you once again for joining us. Um we wanted to get some insight from someone who was at the Fed about what is going on right now. Obviously, Jay Powell has been very firm that he is not stepping down, he is not leaving, but what do you imagine the sort of vibe to be like in the Fed while all this is going on?
So on the one hand, this can be water off their back. They can ignore this quite easily, put their head down, get on with the analysis of um what monetary policy needs to do in the coming months and years. I think they're um on hold. I think they would have been on hold whether Trump criticized them in public or not. On the other hand, it's not helpful. Uh it calls into question uh with some who might not be so closely familiar with the operations of the Fed. Uh there are other market participants who might um might believe might come to believe that the Fed would bend, would yield to Trump's pressure. So they're certainly viewing it as unhelpful.
Jeff, when you when you read those posts by Trump, I mean, obviously got very personal and goes after Powell and Powell is late and he's a loser. He also did talk about preemptive cuts, right? I'm just curious what you made of that.
Uh yeah, so um I think it would be bad policy right now. Um but um it's again, not helpful. Um it's uh, you know, it's it's likely to erode the value of the dollar. It's likely to push bond yields higher. And I think that's why uh some of his closest advisors understand the connection between the Fed's credibility and the outcomes that um the president and the administration undoubtedly want, which is more robust economic growth in the United States. Understand that um uh something that erodes the Fed's credibility um that leads people to think higher inflation is on the way or more likely um is not going to be helpful to their cause.
Jeff, just one line of thinking I'm curious to get your take on is you might hear folks say, well, you know, the recent inflation readings we got were benign and to the extent that we see any, you know, tariff induced higher prices, they'll be transitory, temporary, not persistent. And really the big worry now is growth. So yes, the Fed should be getting ahead of this. They should be cutting. You say what to that, Jeff?
Uh so first of all, it's it's early on, it's early in. It's like the first or second inning. Um the data we have, we don't have any data after the April 2nd and then April 9th um tariff announcements. And that that data in terms of prices isn't going to really roll in until uh later in the summer because you've got a lot of stock piling that's gone on. Um there's uh the prices really aren't going to hit for a couple of months. And then there's going to be a willingness by some firms to absorb it in the short run, uh but not in the longer run. So this is going to play out over the course of a year uh or more um before we see the the real inflationary uh effects.
Um what are the risks of a non-independent Fed, of a Fed that would be influenced more by the White House?
So one doesn't have to speculate. Um we've had two instances of that in history, um that were glaring and turned out very badly. Uh the late 1960s, uh Lyndon Baines Johnson put tremendous pressure on the Fed chair at the time, William McChesney Martin. He had him out to the Texas ranch, drove him at high speed around the rutted uh ranch roads in a Cadillac convertible. There's a great picture of this online. Um and uh was just excoriated him. I mean, he was he was verbally abusive. It was terrible and it it caused the Fed it it caused the Fed to temper its fight against inflation as the great society programs and the buildup in the war in Vietnam added demand pressure that raised the inflation rate over the course of the late 60s. We ended up having inflation go from 1 and a half to five in the course of a couple of years. After that, um Arthur Burns took over as Fed chair under President Richard Nixon, and Nixon very explicitly pressured him to ease monetary policy going into the 1972 election in order to aid the re-election of the president. Um wage and price controls helped keep inflation down over that interlude, but when the inflation controls were lifted in late 1973, inflation shot up from two or 3% to over 13%. Um and we were off to the races with go-stop monetary policy over and it took a decade or more for the Fed to wrest control of inflation, um wrestle inflation to the ground and get it down to a moderate level. So we've had two very bad uh episodes with uh pressure that ended ended bad uh for the American people.
