Is this aimed at me? Follow him on Twitter and see for yourself. Here's an idea:
Trump has tweeted about the Fed 100 times since nominating Jerome Powell
During the
Federal Reserve’s policy pivot in 2019, President Donald Trump relied heavily on his Twitter account to call for more aggressive rate cutting, later demanding that the central bank push rates into negative territory.
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A majority of the tweets (53%) were sent before 10 a.m. ET. Trump also sent almost 30% of his tweets during the 11 days leading up to a policy decision referred to as the “Fed blackout,” when policymakers are not permitted to make public remarks.
Forbes shares a study that claims Trump's influence on the Fed is endangering capitalism.
How Trump's Tweets Killed The Fed's Credibility
Observers have long suspected that President Donald Trump's jawboning of the Federal Reserve may hurt the central bank's credibility with investors.
Now they have proof in the form of a recent study from the National Bureau of Economic Research.
"Our results suggest that markets do not perceive the Federal Reserve Bank as a fully independent institution immune from political pressure," states the paper titled "Threats to Central Bank Independence: High-Frequency Identification with Twitter" by Francesco Bianchi, at Duke University plus Howard Kung, and Thilo Kind, both at the London Business School.
To study whether investors believed that the Fed would act independently of White House jawboning, the professors observed market reactions to the President's tweets. Trump is famous for using twitter to send messages urging change.
What they found was disturbing.
"The collected tweets ardently pressure the fed to lower interest rates," the report states.
They found that the President's tweetstorms worked and resulted in lower expectations of the cost of borrowing money than would otherwise be the case. The conclusion got reached after looking closely at the price of Fed Funds futures contracts along with the tweets and analyzing what changed.
"The cumulative effect of the collected tweets implied our estimation is around negative 10 bps over the past year, with the effect growing over time and horizon," the report continues.
For clarity, 10 bps is equivalent to one-tenth of one percentage point. While that may seem like a nominally small difference when it comes to central banking that is a large figure. The current target Fed funds rate is 1.75% to 2%, so a difference of 0.1% is meaningfully lower than they would have been if the President hadn't tweeted.
"Our findings suggest that market participants believe that the erosion to central bank independence is significant and persistent," the report continues.
Put simply, investors have lost faith in the ability of the Fed to withstand influence from the White House.
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