In an interview with the Wall Street Journal last year, President Donald Trump made his preferences on the matter clear. “I do like a low-interest rate policy, I must be honest with you,” he said. POLITICO Money Podcast How Trump could break from the Fed’s independence

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PALO ALTO, Calif. — President Donald Trump does not really view the Federal Reserve as an independent agency intended to be outside his ability to control, a onetime candidate for the top job at the world’s most powerful central bank said.


Kevin Warsh, a former Fed governor who was on the final short list for the top job at the Fed, said in the latest POLITICO Money podcast that Trump — during an hourlong Oval Office interview last year — appeared to want to know exactly what Warsh would do on interest rates and seemed not to care about the Fed’s historical independence.

“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.”

Warsh added that he did not have the impression that Trump viewed the central bank as an independent organization meant to make decisions in the best long-term interests of the economy rather than at the bidding of the White House or any other political institution. “In some sense the broader notion of an independent agency, that’s probably not an obvious feature to the president,” he said.

Asked if the president appeared to understand the historical importance of the Fed’s independence from partisan political pressure, Warsh said: “This might be a good time for a no comment.”

A White House spokesperson declined to comment on Warsh’s description of the meeting, calling it a private conversation.

Warsh eventually lost out to Jerome “Jay” Powell for the Fed chair job, replacing Janet Yellen. Powell was the favored candidate of Treasury Secretary Steven Mnuchin.

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The issue of Fed independence has become a critical topic in financial markets in recent months as the central bank is engaged in a steady course of interest-rate hikes while reducing its balance sheet as the U.S. economy improves and inflation returns to the central bank’s target range.

The Fed is expected to hike rates at least a couple more times this year. Republicans from Capitol Hill to the White House are eager to see economic growth and wages accelerate following the tax-cut bill Trump signed into law last year. They have been sending hints to the Fed and its new chairman that they shouldn’t be too quick to raise rates and potentially slow growth.

In an interview on Fox News in March, Mnuchin said that while he respects Fed independence he doesn’t believe the central bank will want to stand in the way of a faster economic expansion. “I think the Fed is very committed to making sure they don’t cut off economic growth,” he said.

In an interview with the Wall Street Journal last year, Trump made his preferences on the matter clear. “I do like a low-interest rate policy, I must be honest with you,” he said.

The concern in markets is that Trump will put pressure on Powell, either publicly or privately, to keep interest rates low even if it means risking faster inflation that can eventually spin out of the Fed’s control and destroy Americans’ purchasing power.

This scenario occurred in the early 1970s when President Richard Nixon pressured then-Fed Chair Arthur Burns to maintain a loose monetary policy heading into the 1972 election. Inflation spiked over 12 percent in subsequent years, requiring drastic measures from Fed Chair Paul Volcker.

That period has left Fed-watchers wary of presidential efforts to influence central bank policy to improve their own short-term political prospects.

“All one has to do is to look at the Arthur Burns era to see what doing the administration’s bidding and the inflation that resulted, to see why independence is important,” said Robert Eisenbeis, chief monetary economist at Cumberland Advisors and a former Fed economist. “The other example is Argentina and the harm and costs of a captive central bank.”

In the interview, Warsh also suggested that Powell would likely stand up to any efforts by Trump to influence his policy decisions.

“Jay is a good guy, I’ve known for a long time,” Warsh said. “He’s a man of really high character and my judgment is that that is a really important attribute for a head of a central bank, especially at this moment in time, and that that high character is going to be tested."