Top White House economic adviser Larry Kudlow said Friday he wants the Fed to “immediately” cut its benchmark interest rate by 50 basis points, or 0.5 percent.
Kudlow said he is simply repeating what Trump has called for in the past himself: lower rates. However, there are growing worries of a recession and the last three recessions all had Fed rate cuts months before they started.
“I am echoing the president’s view — he has not been bashful about that view — he would also like the Fed to cease shrinking its balance sheet,” he said on CNBC on Friday. “I concur with that view.”
The Fed said last week it will be “patient” when considering future rate hikes and that there will likely be no hikes this year. The central bank as recently as December had two rate hikes planned for 2019. The Fed also said it will end its balance sheet roll-off this September in another move to appease the markets.
Though Fed Chairman Jerome Powell highlighted slowdowns in overseas economic growth, the Fed did not indicate at its March meeting that rate cuts would be necessary. Trump has criticized the central bank’s plans to increase borrowing costs, but the recommendation from Kudlow marks one of the most explicit directives from the White House to date.
The rhetoric from the White House also signals a shift from historic norms. Prior Fed chiefs — ranging from Alan Greenspan to Janet Yellen — have stressed the importance of the Fed’s independence from political agendas when setting monetary policy. The idea is that the Fed’s independence allows it to make sometimes unpopular decisions, such as raising interest rates, without pressure from politicians looking to goose the economy in the short term.
Trump said last year that the central bank has “gone crazy” with rate hikes, blamed Powell for declines in the stock market and announced he was “not happy” with Powell’s “loco” decision to continue hiking throughout 2018.
In response to the president’s “loco” comment last October, Kudlow told CNBC that “we all know the Fed is independent. The president is not dictating policy to the Fed. He didn’t say anything remotely like that.”