SMITH BRAIN TRUST — In Monday’s presidential debate, Republican nominee Donald Trump accused Federal Reserve chair Janet Yellen of “doing political things” by keeping interest rates low. In addition to referring to the U.S. economy as being in a “big, fat, ugly bubble,” Trump said the “Fed is being more political than Secretary Clinton.” (Democratic nominee Hillary Clinton previously has stated that it is inappropriate for presidential candidates to comment on Federal Reserve Actions.)
“The Fed makes its monetary policy decisions based on what is best for the economy,” says clinical associate professor of finance Elinda Kiss at the University of Maryland’ Robert H. Smith School of Business. “We can view (here) the projections on which the Federal Open Market Committee decisions were based.”
The Fed raised rates late last year, but has delayed a follow-up increase due to overseas markets and waiting for strong signs of continued U.S. economic healing. “Yes, the economy is improving, but inflation is still below the target of 2-percent growth,” Kiss says. “Hence the appropriate stance for the Fed has been to ‘stand pat.’”
“We may see the Fed raise its target for the Federal funds rate – the rate that banks charge each other for overnight loans -- in December or in early 2017,” she adds.
According to Gallup in 2016, confidence in Yellen (arguably the second-most important U.S. economic leader, behind the president) has been at about 40 percent during her tenure, while the percentage expressing no confidence has varied between a high of 43 percent in 2014 and a low of 31 percent last year.
But regardless of public perception, “the Fed will continue to be independent and make its decisions based on the economy, economic projections of the economy going forward and its dual mandates of maximum employment and price stability,” Kiss says.