'Huge credibility deficit': Loyalty sinks another Trump foot soldier

The New York Times reports National Economic Council Director Kevin A. Hassett was seen as the front-runner in the race to replace fed chairman Jerome Powell, but the economist’s unflinching loyalty to President Donald Trump over economic truth became a liability with a market that relies on honest interpretation.

“[His] proximity [to Trump] ultimately morphed into his biggest liability, leaving Mr. Hassett on Friday to lose out on one of the most powerful roles overseeing the U.S. economy,” the Times reports. “In the end, Mr. Trump’s decision evinced both the risk and reward for an economist whose previous views had morphed in service of the White House and its economic agenda. The president did not want to lose one of his most forceful champions, whose full-throated advocacy had won deep praise from Mr. Trump but had fueled fears that Mr. Hassett could not guide monetary policy while resisting political influence.”

Sure enough, on Friday the Times reported Hassett set about reprising “his role of loyal foot soldier.”

“He predicted that the president’s recent tax cuts and other policies would lead to a surge in growth this year. He briefly teased what might yet be ‘possible tax legislation’ to come, though he did not elaborate. And he heralded a coming investment boom in the United States, echoing his past defense of the president’s trade policies,” the Times said.

Congress granted the Fed the autonomy to ensure its officials “set interest rates in pursuit of low, stable inflation and a healthy labor market, rather than in a bid to benefit the president or cater to the whims of electoral politics,” said the Times, but Trump has harassed, threatened and cajoled the fed to lower interest rates at least three points, “far lower than what many economists believe is appropriate.”

Hassett, formerly seen as a reliable wonk for the numbers, instead shared his boss’ criticism of the Fed and its policies under Powell, nailing down once and for all financial critics’ anxiety about his independence.

“It’s one thing when it comes out of Donald Trump’s mouth, but when it comes out of a trained economist who knows better, it’s very, very disconcerting,” said Alan S. Blinder, who served as vice chair at the Fed in the 1990s. “There’s a huge credibility deficit.”

In January, the Times reported Hassett appeared to be the front-runner to lead the Fed, but Trump’s latest slew of attacks on the fed, including an investigation Trump launched against Powell with the help of his politicized justice department, shook markets. This prompted a quick pivot by the White House to a preference for a slightly more independent-minded Fed nominee. Of course, even Trump’s newest preference, Kevin M. Warsh, is the son of a Trump donor, so ‘independence’ is still not a given.

Read the New York Times report at this link.

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