Former Trump economic adviser denies speculation of plan to erode Fed's independence

A former top economic adviser to Donald Trump denied reports that the former president and his allies planned to erode the independence of the Federal Reserve if elected to a second term.

Speaking at the Milken Institute Global Conference, Kevin Hassett, chair of the White House Council of Economic Advisers under the Trump administration, brushed off speculation that Trump would inject himself into interest rate-setting decisions and would oust current Fed Chair Jerome Powell, as reported by the Wall Street Journal.

“I have never heard of anyone having a discussion like that with the president,” he said. “I don’t know anyone who's heard of anyone who's heard of that conversation.”

Any efforts to erode the central bank’s independence would mark the biggest shake-up to US monetary policy in decades. In April, the Wall Street Journal reported that a small group of Trump’s allies had produced a 10-page document outlining a policy vision for the Fed.

Read more: How much control does the president have over the Fed and interest rates?

The vision included the former president being consulted directly on rate decisions. It also argued that Trump, if elected to a second term, would have the authority to oust Powell before his current term ends in 2026.

That speculation set off concerns on Wall Street.

“Central bank independence is crucial for achieving price stability, getting inflation in check, creating a backdrop for markets … creating a backdrop for consumers and businesses that will trust that inflation will come down over time,” said Matthew Luzzetti, chief US Economist at Deutsche Bank.

“If you have an environment where people are cutting rates in order to juice the economy but are not thinking about inflation, then inflation risk premium gets built into markets.”

Hassett has been floated as a potential candidate to replace Powell, according to Trump’s informal advisers. Trump has publicly said he would not reappoint the current Fed chair, claiming he's "not a fan."

The debate around Powell’s future comes as the Fed faces stubborn inflation and weighs a politically fraught decision about when to begin cutting interest rates.

Hassett criticized Fed policy and said recent economic data points to the need for another hike, not a cut.

“I think the Fed's modeling has been wrong, and it's been wrong from the beginning when they were saying [inflation] was transitory,” he said.

The Fed’s interest rate-setting committee decided to keep its benchmark rate in a range of 5.25%-5.50%, a 23-year high, following its recent two-day policy meeting. The committee acknowledged “a lack of further progress” on inflation, but Powell made it clear in a press conference that a rate hike would be “unlikely” as the next policy move.

Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita.

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