Trump is ‘extremely troubled’ by Fed’s approach, according to new letter, but bank official stands firm on independence

Prior to the election, Trump called Powell “political” and said a rate cut would prove the FOMC was attempting to aid the Biden administration.

Since winning the election, Trump has continually lobbied for cuts to the extent of threatening to fire Powell—which he legally is unable to do—and in turn sent shock waves through the market.

Despite a U-turn over the firing threat, President Trump has continued to criticize Powell, including calling him “dumb” and “hardheaded,” and said he should resign.

Vance’s argument is that the decision about such a major lever of the economy should be more diplomatically decided, saying last summer: “Whether the country goes to war, what our interest rates are, these are important questions that American democracy should have important answers for, and I think all President Trump is saying is: ‘Look, it’s kind of weird that you have so many bureaucrats making so many important decisions.’”

The reasoning is clear: To achieve the Fed’s dual mandate of inflation at 2% and maximum employment, the interest rate level should be set by independent economists working for the long-term benefit of the American public, as opposed to the behest of whichever politician is in the White House.

The importance of Fed independence was reiterated yesterday by Alberto Musalem, president and CEO of the Federal Reserve Bank of St. Louis, speaking prior to the letter sent from Vought to Powell.

In response to a question from Fortune during a broadcast event with independent think tank OMFIF, Musalem explained: “If you look at empirical evidence across many countries and many years—so a lot of data—countries that have had more independent central banks have delivered better inflation and better employment outcomes for the people they serve, meaning lower and more stable inflation and higher and more stable employment.”

Musalem previously worked for the International Monetary Fund (IMF) as well as a number of private investment businesses.

He added: “I observed that empirical evidence to be true in my own career.”

Examples of political intervention into the Fed have worked out poorly in the past—take Richard Nixon’s relationship with Fed Chair Arthur Burns.

Burns has been dubbed by many as the worst leader in the Fed’s history, having presided over a period of stagflation—high inflation and low growth—in the 1970s. According to some historians, part of this resulted from his failure to stand up to the Oval Office.

“Countries with more independent central banks are able to control inflation expectations and keep them anchored better, and if they can keep inflation expectations anchored better, that means they can be more responsive to employment and activity when there are shocks to the economy,” president Musalem added. “It’s a good thing to be able to do that.”

Despite having nominated Powell for Fed chair himself, President Trump is making little secret of the fact he wants to see a more dovish person in the role. Indeed, late last month, he told reporters he was “going to put somebody that wants to cut rates.”

President Musalem maintained the need for a board that was accountable and transparent to the public, saying: “We at the Fed have instrument[al] and operational independence, but the goals of maximum employment and price stability are set by Congress, and there’s accountability to Congress.”

This story was originally featured on Fortune.com