More than three-quarters of economic experts polled in a recent survey are worried the Federal Reserve’s independence could be compromised by political interference over the next several years.
The survey of 159 members of the National Association for Business Economics (NABE) found that 50% of respondents are “very concerned” that Fed policy decisions could be influenced by political pressure from the Trump administration, while 27% said they are “somewhat concerned.”
While about 18% of economists are “slightly concerned” about political pressures but think they are unlikely to shift monetary policy outcomes, just 4% think the Fed will remain “fully independent.”
The survey was administered between July 31 and Aug. 11, prior to this week’s revelation that President Donald Trump is seeking to fire Fed Governor Lisa Cook over allegations that she committed mortgage fraud by claiming two homes as her primary residence.
While Trump’s move was praised by administration allies, others expressed concerns that due process was not being followed and that attempting to remove a Fed governor who has not been formally charged with wrongdoing jeopardizes Fed independence.
The latter camp includes former Fed Chair Janet Yellen, who warned of an “all-out assault on the Federal Reserve and an attempt by President Trump to really gain control over decision-making at the Fed,” according to The New York Times.
Trump had previously inserted himself into the monetary policy conversation on multiple occasions, pressuring current Fed Chair Jerome Powell to cut interest rates. At one point Trump handwrote a note that the benchmark federal funds rate should be set between 0.25% and 1.75% instead of its current range of 4.25% to 4.5%.
About 76% of NABE economists indicated in the August survey that the president should have no role in monetary policy decisions, up from 74% in a similar survey from March. Another 23% believe some coordination between monetary policy and White House fiscal policy would be beneficial, down from 26% in the March survey.
Fed rate cut predictions
The Fed will be in the news again in three weeks’ time for much more conventional reasons. On Sept. 16-17, the Federal Open Market Committee (FOMC) reconvenes to decide the course of U.S. monetary policy, including whether a rate cut is appropriate based on current and projected economic conditions.
About 58% of NABE survey respondents think the FOMC will cut interest rates in September. Another 17% think the committee will wait until October, 9% expect a rate cut in December, and 9% think the Fed will hold rates steady this year.
The survey notes that most responses were submitted after Aug. 1, the day the Bureau of Labor Statistics released an unexpectedly dreary jobs report, which spiked the CME FedWatch odds of a rate cut to around 94%. Those odds have since retreated to about 89%, as of Tuesday afternoon.
