New York
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While many CEOs have stayed silent throughout President Donald Trump’s attacks on the Federal Reserve, hedge fund billionaire Ken Griffin is talking out about the risks.
Trump dangers “stoking both higher inflation and higher long-term rates” by undermining the independence of the Fed, Griffin co-wrote in an op-ed in The Wall Street Journal on Sunday titled “Trump’s risky game with the Fed.”
“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,” wrote Griffin, CEO of Citadel; and Anil Kashyap, a professor at the Chicago Booth Business School and a advisor to the Chicago Fed’s analysis division.
The duo warns that history shows how this strategy can backfire, together with the Nixon-era strain on the Fed in the Nineteen Seventies that set the stage for the Great Stagflation disaster.
“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,” Griffin and Kashyap wrote. “Senior voters — tired of bearing the brunt of inflation — could cost the administration dearly in the midterms.”
The White House didn’t instantly reply to a request for remark.
The warning represents a uncommon reprimand from a CEO at a time when many enterprise leaders have tried to keep away from publicly criticizing the president and others have gone out of their way to curry favor. Big financial institution CEOs publicly defended Fed independence this summer season, whereas avoiding criticizing Trump immediately.
Griffin, who has mentioned he voted for Trump in final November’s election, has repeatedly slammed the administration’s trade war.
Trump has relentlessly condemned Jerome Powell, his handpicked Fed chair who was later reappointed by former President Joe Biden. Some Fed watchers fear Trump might attempt to give the US central bank a MAGA makeover in an effort to exert larger affect over rates of interest.
Last week, Treasury Secretary Scott Bessent argued the Fed must be relieved of its duties regulating America’s banks as a result of the US central financial institution has veered from its core mission.
Griffin and Kashyap, in the Journal op-ed, expressed concern that Trump’s battle on the Fed will backfire in a minimum of two methods.
First, artificially low charges from the Fed might overheat the economic system — worsening inflation at a time when polls present voters stay pissed off over the value of dwelling.
Secondly, buyers might lose religion the Fed is dedicated to maintaining costs steady, resulting in even increased long-term borrowing prices for each the federal authorities and homebuyers.
“While the US benefits from a large stock of credibility accumulated over decades, it isn’t limitless,” Griffin and Kashyap wrote. “If eroded, markets will demand far higher interest rates for longer-term debt.”
The two additionally argued that it’s in the president’s “best interest” for the Fed to be considered as impartial and to truly act independently.
This frees Fed officers to make unpopular however vital selections — like spiking rates of interest to battle inflation. That’s what the Powell-led Fed did (albeit belatedly) in 2022 when costs skyrocketed.
“Credibility in economic policymaking is built slowly, through practice and respect for processes,” Griffin and Kashyap wrote, “and can be lost quickly if those processes are disregarded.”