In a speech, Jerome Powell said Americans' trust in government and public institutions is at an all-time low. | Alex Wong/Getty Images In veiled message to Trump, Powell warns against meddling on Fed rates

Federal Reserve Chairman Jerome Powell on Friday issued his sternest warning yet that politicians should not interfere with interest-rate policy, in what appeared to be a precautionary message to President Donald Trump.

In a speech in Sweden, Powell indirectly referred to a previous Fed chairman, Arthur Burns, who was pressured by President Richard Nixon in the lead-up to the 1972 presidential election to keep interest rates low.


That episode eventually contributed to a rapid rise in prices, requiring one of Burns' successors, Paul Volcker, to raise interest rates as high as 20 percent to combat inflation.

“For a quarter century, inflation has been low and inflation expectations anchored,” said Powell, a Trump appointee. “We must not forget the lessons of the past, when a lack of central bank independence led to episodes of runaway inflation and subsequent economic contractions.”

The Fed chairman’s remarks come as the central bank continues to gradually hike interest rates to a more normal level, after they sat near zero for almost a decade in an effort to boost the economic recovery. The central bank is widely expected to raise rates again next month.

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The White House and congressional Republicans are eager to see economic growth and wages accelerate following the tax cut bill Trump signed into law last year, and the president has said publicly that he would like interest rates to stay low. If the Fed raises rates too quickly, it could slow the expansion.

Kevin Warsh, a former Fed governor who along with Powell was on the short list for the chairmanship, told POLITICO earlier this month that Trump — during an hourlong Oval Office interview — appeared to want to know exactly what Warsh would do on interest rates.

“If you think it was a subject upon which he delicately danced around, then you’d be mistaken. It was certainly top of mind to the president,” Warsh said about Trump’s questioning on interest-rate policy. “The president has a view about asset prices and stock markets. He has a view based on his long history in his prior life as a developer and real estate mogul of the role of interest rates.”

In his speech, Powell said Americans' trust in government and public institutions is at an all-time low. This dynamic is particularly tricky for the central bank, which is given considerable freedom from day-to-day politics; Fed governors’ time in office is not strictly tied to a particular president and the agency sets its own budget.

“In this environment, central banks cannot take our measure of independence for granted,” said Powell. “For monetary policy, the case for central bank independence rests on the demonstrated benefits of insulating monetary policy decisions from shorter-term political considerations.”

The Fed’s obligation, Powell said, is to communicate as clearly as it can to the public what it is doing and why.

“Public transparency and accountability around both financial stability and monetary policy have become all the more important in light of the extraordinary actions taken by central banks in response to the global financial crisis,” he said.

The White House did not immediately respond to a request for comment.

Laurence Meyer, a former Fed governor who now heads a policy analysis firm, said the remarks underscore Powell's style of being particularly direct for a Fed chairman. He said there was "no question" that those words were aimed in part at the president.

"He may see this statement as especially important to emphasize that, notwithstanding that Trump nominated him as chair, he is absolutely committed to and will vigorously defend the independence of the Fed as [it] continues to raise rates gradually to avoid an unacceptable rise in inflation," Meyer said.