Fed nominees vow to rebuff pressure from Trump on interest rates

President Trump’s two latest nominations to the Federal Reserve touted their independence Tuesday to a Senate panel that expressed concerns about the White House’s influence on the central bank.

Fed vice chairman nominee Richard Clarida and Fed governor nominee Michelle Bowman told the Senate Banking Committee that they wouldn’t yield to pressure from Trump to keep rates low and would speak out against excessive regulatory rollbacks.

Clarida, an investment bank executive and monetary policy scholar, and Bowman, a former community banker, have similar backgrounds to many of Trump’s financial regulatory appointees. Both are likely to be confirmed with little opposition and are seen as moderate right-leaning influences on the Fed.

Republicans showered praise on Clarida, a Columbia University professor whose academic research is meant to complement Fed Chairman Jerome Powell’s extensive financial markets experience. They also lauded Bowman, nominated to fill the Fed board’s spot reserved for someone with community bank experience.

While Banking panel Democrats showed few signs they’d vote against the nominees, they pushed them to fight any effort from Trump to influence the Fed’s plan to raise interest rates.

“I’m very concerned about the strength and aggressiveness of you two pushing back,” said Sen. Sherrod Brown (Ohio), the panel’s ranking Democrat. “We cannot afford for either of you to be a rubber stamp.”

Trump has the chance to reshape the Fed during his first term, with a slew of vacancies requiring replacements. The president has three nominees to the Fed pending before the Senate, including Clarida and Bowman, and has another spot on the board to fill.

Trump has been open about his preference for low interest rates, which tend to boost the U.S. stock market. Though he accused former Fed Chairwoman Janet Yellen on the campaign trail of keeping rates low to juice stocks for former President Obama, Trump had high praise for Yellen once he took office and considered renominating her.

The Fed is aiming to raise rates closer to historic averages, a process started by Yellen in December 2015. Powell has shared Yellen’s preference for slow, steady rate hikes to prevent inflation from spiking.

Other more conservative voices on the Fed have pushed for a faster pace of rate hikes over fears that moving to slowly could lead to an overheated economy.

Trump has not explicitly said he wants the Fed to keep interest rates low, which would be a breach of the central bank’s independence. Some lawmakers — predominately Democrats — fear that Trump would do so anyway. They cite former President Nixon’s pressure on former Fed Chairman Arthur Burns to keep rates low ahead of the 1972 election, which scholars say led to rampant inflation. 

Senators from both parties asked Clarida and Bowman if they’d respond to pressure from Trump to keep rates low.

Both insisted that they wouldn’t yield to any sort of political pressure, and Clarida said the issue had not come up in his discussions with the White House.

“I had a number of meetings over several months with a number of officials, including the president,” Clarida said. “In no meeting at no time did I ever have any reason to question the independence of the Federal Reserve.”

Bowman added, “The Fed makes decisions based on sound economic policies and judgements, and politics has no place in that.”

Sen. Tim Scott (R-S.C.) also asked the nominees if they’d consider the performance of the stock market in their decisions on rate hikes. Both said it would be one of several factors they would analyze and wouldn’t drive their opinions in and of itself.

Democrats also fear the new additions to the Fed will weaken the strict Dodd-Frank Act rules imposed on U.S. banks, which Trump and the GOP plan to loosen. The House is expected to approve next week a Senate-passed bill to exempt dozens of banks from stricter Federal Reserve oversight, and the Fed board has proposed rollbacks of capital buffers and leverage ratios on larger banks

“It matters more than ever who will be voting on proposals to weaken bank rules,” Brown said. “The financial crisis followed a decade of deregulation of the financial industry, and now too many people who informed the policies before the crisis are back.”

Clarida and Bowman expressed support for loosening regulations on community banks and other small lenders, but preserving the bulk of Dodd-Frank controls for big banks. They did not weigh in on the Fed’s rollback proposals, but Clarida and Bowman promised they’d oppose those efforts if they went too far and posed threats to financial stability.