Posted on Nov 3, 2020 at 9:30 a.m.

“Who is our main enemy? Jay Powell or President Xi? “ Dropped in a tweet from Donald Trump in August 2019 – when the trade conflict between Washington and Beijing is at its highest – this question is the perfect illustration of the more than tumultuous relations between the head of the White House and that of the Bank central American.

The American president has never ceased to want to take control of the Fed’s policy, and this since the 2016 campaign. Candidate Trump did not have enough harsh words to castigate the president of the institution at the time. Janet Yellen accusing him of keeping interest rates low to promote the election of Democrat Hillary Clinton . Once in power, the American president ends up praising his action , while refusing to renew it at the head of the Fed.

Scapegoat

Instead, he names Jerome Powell. Republican, this former lawyer and banker notably served in 1992 in the Bush administration. And he is rather one of the “doves” of the Fed, in favor of supporting the economy. The ideal candidate for Trump, who praises his strength and intelligence when he took office in February 2018. But relations will quickly deteriorate. Jerome Powell, in line with Janet Yellen, continues to hike the Fed’s key interest rates, in a buoyant economic context, reinforced by the tax reduction measures decided by Donald Trump.

The American president, who was counting on a fall in the cost of money to boost economic activity even more, is strangling. He goes so far as to declare that the Fed “Went crazy”, and in fact a scapegoat which he accuses of undermining his efforts. “Every time we do something good, he [Jerome Powell] raise the rates “, complains the US president in an interview in October 2018.

Interventions

But the boss of the Federal Reserve hold on and continues its monetary tightening . Fed funds rates climb at the end of the year to a range of 2.25-2.50%, their highest level since the collapse of the Lehman Brothers bank. This is too much for Donald Trump who redoubles his blows. Jerome Powell would be guilty in his eyes for not reacting to the currency war waged by China, and even by Mario Draghi’s European Central Bank which eases its monetary policy . In February, the tenant of the White House asks his legal teams to floor on a possible dismissal of Powell , or at least a dismissal of his role as president. He also tries to place one of his close advisers , Stephen Moore, at the Fed. In vain.

But when, in August 2019, the Fed decides on a small rate cut, markets and economists alike are perplexed. Has the Fed chairman succumbed to the pressure? Several former U.S. central bank executives Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen had shortly before signed a platform in the columns of the Wall Street Journal, worrying about threats to the independence of the central bank, yet essential to its mission .

Coronavirus

Faced with the onset of a slowdown in the US economy, the Fed is lowering its rates again twice, and relations with Donald Trump are relaxing. But it was the coronavirus crisis that allowed a real lull. Even though the efforts of the central bank are first judged“Shabby and slow” by the US president, the latter is lowering its rates to zero and relaunching its very large-scale asset purchase programs, notably absorbing a large part of the federal debt issued to deal with the consequences of the pandemic. The Fed goes so far as to directly finance companies, including SMEs, via loans. Never seen.

For the markets, it was the Fed that allowed to avoid a real catastrophe for the American economy , while the political authorities have still not agreed on the renewal of the fiscal stimulus plan. When the meeting of the monetary policy committee of the central bank ends on Wednesday, we cannot yet know with certainty the name of the future US president. But what is certain is that Jerome Powell will continue in his term at least until its term, in February 2022.