Karl W. Smith, Columnist

The Fed’s Job Is to Protect the Economy, Even From Trump

The bank has to cut rates not to support the president’s policies but to contain their damage.

August 6, 2019 at 6:15 PM UTC

Karl W. Smith is a Bloomberg Opinion columnist. Previously, he was vice president for federal policy at the Tax Foundation and assistant professor of economics at the University of North Carolina.

Making each other’s lives more difficult.
Photographer: Bloomberg/Bloomberg

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All four living former chairs of the Federal Reserve took to the op-ed page of the Wall Street Journal on Monday to defend the bank’s independence. In doing so, they’ve given the current chair, Jerome Powell, invaluable cover to provide support to a U.S. economy buffeted by President Donald Trump’s trade war.

Nevertheless, Powell remains caught between the proverbial rock and hard place. Monetary economics tells him to cut interest rates aggressively to minimize the risk of a recession so close to the so-called zero lower bound. Political-choice economics, however, counsels more gradual cuts, so as to avoid even the appearance of lost independence.