Former US Treasury Secretary: Trump's remarks are "shocking", the consequences of presidential intervention in monetary policy are very serious
Trump's interference in monetary policy has sparked controversy, with former Treasury Secretary expressing shock, believing that government intervention will exacerbate inflation without substantial output growth. He cited historical cases and the experience of Latin American countries, emphasizing the importance of central bank independence. Summers believes that there is no need for an emergency rate cut at the moment, but appropriate rate cuts may be suitable at the policy meeting in September. Powell previously stated that a significant rate cut is not currently under consideration
During his tenure, Trump once urged Chairman Powell to relax policies, claiming that policy-making is an "intuition," and that he often has "better intuition" than the Fed chairman and other senior officials.
Summers, the current Harvard University professor and paid contributor to Bloomberg TV, commented on Trump's suggestions, saying, "I was really shocked, what a terrible idea."
He stated, "The president has a lot to do at all times, in fact, his understanding of the economy is far less than the 19 members of the Federal Open Market Committee, who focus on constantly examining every economic statistic."
Trump's campaign team did not immediately respond to requests for comment.
Summers emphasized that over time, countries around the world have come to realize that politicians have "deep conflicts of interest" in monetary policy, hence granting independence to central banks.
He pointed out that government officials "always want to print more money, lower interest rates - step on the gas to boost the economy." This pressure raises people's expectations of inflation, pushing up long-term interest rates. Summers has held senior economic positions in the Democratic administrations of Bill Clinton and Barack Obama.
He believes that such actions by government officials will only "exacerbate inflation, without substantial output growth."
Summers cited the example of former President Richard Nixon, who is best known for pushing then-Fed Chairman Arthur Burns to implement loose monetary policy in the early 1970s, triggering a costly inflation cycle. He also mentioned "countless" cases in Latin America, where many economies have turned to independent central banks in recent years to curb inflation.
Regarding the current policy decisions of the Fed, Summers stated that given the easing of market volatility and stock market sell-offs since the turmoil from last Monday, "based on current facts," any emergency rate cut is unnecessary.
He said, "An emergency response would be hasty, panicked, overheated, and counterproductive." However, he also believes that at the policy meeting in September, "a 50 basis point rate cut may be appropriate."
Powell had previously stated at a press conference after the July rate decision that a significant rate cut "is not something we are currently considering."