Yellen defends Fed against Trump’s attacks

Former Federal Reserve chair Janet Yellen on Monday described President Donald Trump’s attacks on the Federal Reserve as “damaging to the Fed and to financial stability.”

Speaking to the annual Mortgage Bankers Association convention here, Yellen said she has confidence in her Trump-appointed successor, Jerome Powell, and that she didn’t believe Trump’s comments last week describing recent moves to raise interest rates as “loco” would impact Fed policy.

Yellen, nevertheless, was clear that she believes presidents should avoid public comments on Fed policymaking.

“I really think it is not a desirable thing for a president to comment so explicitly on Fed policy,” she said. “Obviously, presidents can speak out if they choose to and give their opinions about policy, there’s no law against that, but I don’t think it’s wise and I do think the Fed has a strong reputation for acting in an independent and non-political way and I would not like to see that reputation damaged.”

Trump economic advisers have repeatedly defended the president’s right to speak his mind about economic policymaking.

“Look — the president, as a successful businessman and investor, knows a lot about these topics. He’s giving his opinion,” National Economic Council director Larry Kudlow said on “Fox News Sunday.”

The current norm of presidents not commenting on monetary policy stems from 1994, when the Federal Reserve under Alan Greenspan was beginning to raise interest rates as the economy emerged from a recession, spooking the ascendant stock market. Then-President Bill Clinton wanted to speak out against further hikes, but his treasury secretary persuaded him not to, Yellen recalled.

“Rob Rubin, who was I believe a wise adviser, told Clinton it would be self-defeating and counterproductive to criticize the Fed’s actions, that it would politicize the Fed, and undermine confidence in a policy that was working,” she said. “It was important for markets to know that the Fed has a commitment to price stability.”

Last Friday, Trump’s Treasury Secretary Steven Mnuchin said in a CNBC interview that while the president “likes low interest rates,” he also respects the Fed’s independence.