The Federal Reserve dismisses apprehensions concerning another Trump presidency, yet behind-the-scenes gatherings from his initial term tell a different story.
If Trump wins the November US presidential election, he has pledged to install substantial tariffs of at least 10% on all foreign imports, with up to 60% levies for certain Chinese products, and rates as high as 100% for nations abandoning the dollar as their primary currency.
These policies could result in substantial consequences for the US economy as well as worldwide economies.
To gain further insight into this matter, US legislators have consulted Jerry Powell, the leader of the world's largest economy's central bank – the Federal Reserve.
However, during congressional hearings, press conferences, and letters from lawmakers, Powell has consistently maintained a neutral stance. As the head of an independent and apolitical agency, he believes it is his duty to avoid commenting on political agendas.
"We do not comment on trade policy," Powell stated in a Senate Banking Committee testimony in July when asked about the effect of the tariffs Trump proposed.
"We do not want to be involved in politics in any way," he reiterated after the July monetary policy meeting.
Although politicians' decisions significantly impact the economy, central bankers like the Fed officials must base their interest rate decisions on the fulfillment of their mandate for price stability and maximum employment, considering fiscal policies' effects.
"When Congress undertakes deficit spending, it can stimulate the economy, which we factor into our models," Powell said during a "60 Minutes" interview earlier this year. "But it's not our role to evaluate fiscal policy in any way."
As a result, Fed officials frequently discussed the potential economic implications of the tariffs Trump advocated for or enacted during his first term, although the proposed tariffs were considerably smaller than those he's currently campaigning on. Transcripts detailing their discussions provide a glimpse into how central bankers might perceive Trump's latest tariff proposals' effects on the economy.
Recent publicly available transcripts, including the December 2018 monetary policy meeting transcript, show that some Fed officials had reservations about Trump's trade policy and its impact on the economy. The Fed keeps these transcripts concealed for years to prevent political interference.
Concerns on the Rise
At the December 2016 monetary policy committee meeting, following Trump's election, officials grappled with integrating his campaign promises involving higher tariffs, tax cuts, and stricter immigration controls into their economic outlook forecasts, which serve as the basis for their monetary policy decisions. The general consensus was to wait and see, but some were already preparing for negative consequences.
According to a transcript, Loretta Mester, then-president of the Cleveland Fed, said: "Policies that restrict immigration and trade would have negative consequences for the US economy over the medium and long-term, but I have not incorporated these into my projections yet."
"This means policymakers need to base their decisions on the forecast and assess the risks," Mester explained, adding that fiscal policy is a factor in the calculation. "Political considerations do not enter the equation and are never discussed during the FOMC meetings," she said, using FOMC to refer to the Fed's interest rate-setting body.
At that meeting, James Bullard, then-president of the St. Louis Fed, jokingly remarked: "According to some interpretations of the Book of Revelations, when three unusual events occur together, they may be a sign that the apocalypse is near."
"Let's take stock," he continued. "The Chicago Cubs have won the World Series, Donald Trump has won the presidency, and Bob Dylan has won a Nobel Prize," Bullard said, referencing three events that occurred in 2016. His comments were met with laughter from other meeting attendees, as per the Fed transcript.
"Poorly Conceived US Government Policies"
Later meetings revealed more concern as the Trump administration prepared for a possible trade war with China. Fed officials became increasingly critical, occasionally taking issue with political agendas.
"The intended purpose of Trump's administration to be tough on trade may not result in better trade deals for the United States, but rather a significant increase in trade barriers and the subsequent negative consequences," William Dudley, then Vice Chair of the Fed, stated at the monetary policy meeting that took place from January 31 to February 1, 2017.
"So it seems to me that we may be trading a higher likelihood of a sustained expansion over the next year or two for a higher likelihood of a hard landing later," Dudley said, using the term "hard landing" to describe a situation where the Fed is unable to control inflation without triggering a recession.
"The longer-term effects of some of the policy changes being considered, especially those related to trade and immigration, could be quite destructive," Mester said at the same meeting. "There are other threats as well, including geopolitical risks, some originating from a potential escalation of poorly conceived US government policies."
These tariff policies proposed by Trump could significantly impact the US business sector and international trade relationships.
Central bankers like the Fed officials must evaluate the effects of fiscal policies on the economy, including potential tariffs, but they do not comment on or evaluate political agendas directly.
