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Donald Trump’s potential pick to run the Federal Reserve has defended the central bank’s large interest rate cut last month, despite accusations by the former president that it was politically motivated.
Speaking to the Financial Times, Kevin Hassett — a Trump economic adviser who served in his administration — said the Fed’s move to cut its main interest rate by half a percentage point rather than a more typical quarter-point was justified by figures showing a weakening jobs market.
“The latest move to start reducing rates is something that made a great deal of sense based on the data that they had at the time,” Hassett said in an interview with the FT’s Unhedged newsletter. “It did look like there was a sharp slowing going on.”
Hassett’s comments put him at odds with Trump’s condemnation of the Fed’s action during remarks at the Detroit Economic Club earlier this month.
“The fact is that the Federal Reserve brought the interest rates down a little too quickly,” Trump said. “It was too big a cut and everyone knows that was a political manoeuvre that they tried to do before the election,” he added, suggesting the US central bank was trying to lower borrowing costs to help his Democratic rival Kamala Harris.
Hassett is a fellow at Stanford University’s Hoover Institution who served as chair of the council of economic advisers during Trump’s White House term starting in 2017. He has remained in Trump’s orbit and is in line for a top job — including potentially running the Fed — if the Republican nominee defeats Harris next month.
The expectation is that Trump would choose a new Fed chair after the term of Jay Powell, the current head of the central bank, runs out in 2026.
Trump has been a harsh critic of Powell in the past, including calling him a bigger enemy of America than Xi Jinping, the Chinese president, for failing to cut interest rates as much as he wanted in 2019. Earlier this year, he warned Powell against cutting rates ahead of the presidential election.
Hassett agreed with Trump’s views that the Fed had acted politically in recent years.
“I think that there’s a reasonable case to be made that [the Fed] hasn’t been as independent as it should be,” he said. Hassett cited the central bank’s decision to raise rates in December 2016, just before Trump’s presidential inauguration, despite data that was “not supportive of a hike”.
Later, “when there was a fiscal policy blowout with a complete Democratic government, then the Fed didn’t do anything to offset it”, he added.
But Hassett rejected concerns that Trump would seek to undermine the Fed’s independence in a second administration.
“I am sure that President Trump supports central bank independence, but he also wants to have his voice heard, and he wants to have people there who are truly independent,” he said.
The Fed has always rejected any suggestion that US monetary policy is set on political grounds. After cutting rates by a half-point last month, the Fed is expected to implement smaller quarter-point cuts in November and December, especially after signs of renewed strength in the labour market.
“I wouldn’t give them a bad grade for the September move, although in retrospect, it looks like probably they wish they didn’t do it,” Hassett said.
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