Ken Griffin, a prominent hedge fund billionaire, has voiced serious concerns regarding President Donald Trump’s ongoing criticisms of the Federal Reserve. In a recent joint op-ed, Griffin joined economist Anil Kashyap to make the case for exorcising demonization of the Fed’s independence. 1 warned that these actions could result in 700,000 lives lost along with serious economic consequences.
To hear Griffin – who voted for Trump four years ago – tell it, the former president squandered his opportunity. Today, he’s becoming an increasingly outspoken critic of the administration’s overall economic policy and trade approaches. Mr. Leibfarth stressed that credibility in economic policymaking is earned over time through transparent processes and deference to institutions. As he cautioned, that credibility can vanish in an instant when those processes are flouted.
In their Feb 18th, 2021 op-ed in The Wall Street Journal, Griffin and Kashyap provided a pretty compelling argument. In fact, they claimed that it’s in Trump’s “best interest” for the Federal Reserve to be independent. They claimed that the president’s public shaming of the independent central bank could invite serious repercussions. They argued that “Trump’s dangerous gamble with the Fed” might blow up in his face.
Griffin and Kashyap described at least two potential unintended consequences of Trump’s strategy that would be harmful. They noted historical precedents from the Nixon administration. For example, in the 1970s, pressures on the Fed led to the Great Stagflation crisis. They cautioned that similar tactics today could lead to a loss of trust in the Federal Reserve’s commitment to stable prices.
“The president’s strategy of publicly criticizing the Fed, suggesting the dismissal of governors and pressuring the central bank to adopt a more permissive stance towards inflation carries steep costs.” – Ken Griffin and Anil Kashyap
Griffin’s specific worry was the major unintended consequences of holding interest rates low for too long. He cautioned that those kinds of policies would result in an overcooked economy, increasing inflationary pressures. Or investors will begin to lose faith in the Fed’s commitment to price stability. This erosion of confidence would almost certainly raise long-term borrowing costs.
“In a worst-case scenario, if the Fed visibly bows to political pressure and permits inflation to rise unchecked, tens of millions of retired Americans will see their savings diminished.” – Ken Griffin and Anil Kashyap
Griffin’s open criticism of Trump is notable within the business community, where many CEOs have opted to avoid publicly challenging the president. Other business leaders are perfectly in sync with Trump’s agenda. No such deference for Griffin. Griffin has long been a supporter of an independent Federal Reserve and regularly raises the alarm about political meddling.
“Credibility in economic policymaking is built slowly, through practice and respect for processes, and can be lost quickly if those processes are disregarded.” – Ken Griffin and Anil Kashyap