Fed Credibility at Risk in Rate Decision Showdown with Trump

The Federal Reserve's credibility is at stake as it prepares to make its next rate decision. The Fed's Chair, Kevin Warsh, has been under pressure from President Donald Trump, who has attacked the Fed and threatened to fire its members.

Kenneth Rogoff, a Harvard economist, suggested that the Fed should delay its decision until after the midterms to preserve its independence. However, this approach would undermine the Fed's credibility as an inflation fighter, according to research by Rogoff himself.

Rogoff's 1983 model showed that central banks are more effective at fighting inflation when they have a strong reputation for being tough on prices. The Fed's credibility is won or lost under pressure, and playing politics would mark a real shift in its approach.

The article cites data showing that the Fed's decisions are not affected by election timing. In fact, the Fed has hiked rates before midterms and cut them before elections without influencing its decision-making process.