Billionaire Michael Bloomberg sends strong message on the economy

The dramatic escalation of pressure by the White House on the Federal Reserve and Chair Jerome Powell to lower interest rates is ticking off billionaire Michael Bloomberg.

Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News, and the founder of Bloomberg Philanthropies. 

He’s also the former mayor of New York City whose name has been bandied about frequently as a possible presidential candidate.

I’m reminding you of this right up front as a gentle reminder of his multi-hyphenate expertise in matters of business and politics.

The Trump administration's criminal investigation of Powell, which came to light earlier this week, is a “dangerous” move on both economic and political fronts, Bloomberg wrote in a Jan. 15 opinion piece on Bloomberg.

“When the administration interferes with monetary policy, it’s harder for the central bank to deliver what the White House wants: a lower cost of finance,’’ Bloomberg wrote.

“This is a formula for financial panic and economic disaster.’’

Powell pushes back against DOJ probe

The unprecedented threat of criminal charges against the head of the U.S. independent central bank came to light late Jan. 11.

Powell announced that the Department of Justice issued subpoenas to his office related to the cost of the $2.5 billion renovation of the Fed’s headquarters and whether Powell perjured himself describing the work and expense to Congress.

“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” a defiant Powell said in a two-minute video. (Read the transcript here.)

DOJ Powell probe unsettles global economic, finance leaders

The unprecedented criminal investigation against a sitting Fed chair rattled not only economists, industry heads, and politicians, but also members of the Trump administration and its allies.

While the initial reaction of markets appears subdued, financial leaders including J.P. Morgan CEO Jamie Dimonwarned of potential global economic destabilization that could erupt if President Doland Trump’s campaign for lower interest rates led to a rupture in Fed independence.

One Trump insider described the fallout from the DOJ probe in three words to The Wall Street Journal on Jan. 13: “A huge cluster.”

Bloomberg calls for the White House to back down on Fed chair

“For the country’s sake — and, by the way, to avoid the collapse in popular support that would likely follow a severe financial-market backlash — the administration needs to think again,’’ he said.

Trump has denied knowledge of the criminal probe and said it was not related to his year-long demands that the independent central bank drastically lower interest rates. 

He has, however, continued to criticize Powell as a “bad” Fed chair.

The DOJ has not commented.

Bloomberg says investors favor central bank independence

Bloomberg offered additional explanation.

• “Once investors think that monetary policy is set according to short-term political calculations, they’ll expect lower interest rates and therefore, after a delay, higher inflation… 
• “That prospect in turn will raise longer-term rates (which the central bank can’t directly control), increase the cost of credit, discourage private investment, and make public debt (which in the U.S. is already rising unsustainably) harder to service.’’

Bloomberg said an independent Federal Reserve shields the executive branch from monetary policy pressure “which helps the economy and, except in the very short term, serves the government’s political interests as well.”

Bloomberg offers the White House an option

“This is a formula for financial panic and economic disaster. The president needs to change course,’’ Bloomberg said.

President Trump should “blame overzealous officials for this latest development, declare a ceasefire and say he has no intention of running monetary policy out of the White House.’’

The administration should then stop its multiple efforts to control the central bank, he added.

“Persisting with this campaign of intimidation is a decision everyone involved will come to regret,’’ Bloomberg said.

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