Mark Carney may be forgiven today if he feels slightly battered.
The Bank of England governor has endured, as he must surely have expected, some ferocious personal attacks from Brexit supporters after the Bank’s latest financial stability report and stress tests, published on Wednesday , sketched out some apocalyptic scenarios – not forecasts – for the UK economy in the event of a no-deal Brexit next year.
Yet there is another central banker in the world who would happily swap places with Mr Carney.
For while the governor has had to put up with abuse from backbench MPs, his opposite number in the United States, Jay Powell, has had to take criticism from the man who nominated him, Donald Trump.
And on Wednesday evening, just as Mr Carney was being questioned about the stability report, Mr Powell appeared to be delicately walking away from a gun the US president had pointed at his head.
The chairman of the US Federal Reserve told the Economic Club of New York that the central bank’s main policy rate was now “just below” a neutral level at which it neither boosts nor slows down the rate of growth in the US economy.
It marked a significant change from comments made by Mr Powell only last month, when he said that the rate was still a “long way” from a neutral level , which had primed Wall Street to expect further rate hikes in coming months.
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The Fed has so far raised interest rates three times this year, most recently in September, taking its key policy rate, the Fed Funds rate, to a range of 2-2.25%. Investors have been bracing themselves for another increase next month.
So what has changed? Not the outlook for the US economy which, while expected to see a slower rate of growth in 2019, is still growing at a sufficient pace to justify further increases in the cost of borrowing.
No, Mr Powell has blinked in the face of some unpleasant personal attacks from Mr Trump.
When stock markets fell last month, Mr Trump blamed the Fed, accusing it of being “crazy” and “loco” for raising interest rates too fast.
He stepped up the attacks at the end of October when he told the Wall Street Journal: “To me, the Fed is the biggest risk [to the US economy] because I think interest rates are being raised too quickly.”
Mr Trump added: “I’m not happy with what he [Mr Powell] is doing at all… it almost looks like he’s happy raising interest rates. Every time we do something great, he raises interest rates.”
Then, on Tuesday, just a day before Mr Powell’s speech, the president told the Washington Post: “I think the Fed is a much bigger problem than China. At this moment in time, I am not at all happy with the Fed. I’m doing deals and I’m not being accommodated by the Fed. They’re making a mistake because I have a gut and my gut tells me more sometimes than anybody else’s brain can ever tell me.”
He went on: “So far, I’m not even a little bit happy with my selection of Jay.”
Faced with this barrage of criticism, Mr Powell appears to be taking a more dovish line, which is why all of the main US stock indices rose sharply on Wednesday night . The S&P500 rose by 2.3%, the Dow Jones Industrial Average by 2.5% and the Nasdaq by 2.95%.
The Fed enjoys a unique position in the US government. While it is an arm of government, with its chairman nominated by the president, it is subject to only a certain degree of oversight from congress. This means that, crucially, investors and markets regard it as independent.
Mr Trump’s three immediate predecessors – Barack Obama, George W Bush and Bill Clinton – were careful not to criticise the Fed chairmen of their day. If anything, on occasions, they lavished them with too much praise.
And, when presidents do criticise the Fed, they only tend to do it once they have left office. George HW Bush said in 1998 that he blamed Alan Greenspan, the former Fed chairman, for his defeat in 1992 at the hands of Mr Clinton because he had not cut interest rates fast enough in 1990 and 1991.
He said of Mr Greenspan, who had originally been appointed by Ronald Reagan in 1987: “I reappointed him and he disappointed me.”
You have to go back almost half a century to find a president that has threatened the Fed’s independence to the extent Mr Trump has. In 1970, Richard Nixon declined to reappoint William McChesney Martin, the longest-serving Fed chairman on record and famous for his observation that the Fed’s job is “to take away the punch bowl just as the party gets going”.
Nixon, who blamed a rise in unemployment for his defeat in the 1960 presidential election when he was vice-president, replaced him with Arthur Burns. He subsequently put pressure on Burns to keep interest rates down in the hope that unemployment would remain low in the run-up to the 1972 presidential election. Burns complied. Unfortunately, in 1973, the oil crisis erupted, sending US inflation to double-digit levels. Unemployment rose and growth stagnated.
That is what makes all of Mr Trump’s attacks on a man he only nominated in November last year deeply troubling. If the Fed is deterred from keeping rates too low for too long, the likely upshot will be a burst of inflation and interest rates that have to be raised aggressively later on to combat it, jeopardising growth and risking higher unemployment.
As disturbing is that Mr Trump is not alone in this behaviour. Recep Tayyip Erdogan, the Turkish president, has recently put pressure on the Turkish Central Bank to hold down interest rates – something the bank, to its credit, refused to do. And Narendra Modi, the Indian prime minister, has recently launched a series of attacks on the Reserve Bank of India for raising interest rates too quickly.
It all seems a long way away from the period, immediately following the global financial crisis, when central bankers were garlanded as the new rock stars.
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