Markets will rebel if Trump or any president tries to control the Fed, Harvard economist says

"If you take away Fed independence, investors are gonna get jittery, inflation expectations are going to go up, the dollar is going to tank."

• Markets would resist executive influence over the Federal Reserve, Kenneth Rogoff told Bloomberg TV.
• Inflation expectations would jump while the dollar would tank, the Harvard professor said.
• Donald Trump allies have reportedly been brainstorming ways for him to exert more influence over the Fed, if elected.

Political attempts to influence the Federal Reserve won't go over well with markets, Harvard's Kenneth Rogoff said.

"If you take away Fed independence, investors are gonna get jittery, inflation expectations are going to go up, the dollar is going to tank," the economics professor told Bloomberg TV on Tuesday. "So happily, for better or worse maybe, I think markets will throw a pretty cold bucket of water on the president if he tries to do that."

Sparking his comments are recent reports that Donald Trump allies are drafting plans to help the Republican candidate secure a degree of influence the central bank, in the event he wins November's election.

Suggested among these is that Trump could fire Fed Chairman Jerome Powell, a figure he himself elected in 2017, before accusing him of considering interest rate cuts as a way to help Democrats. 

"It's clear you know, he wants to be a disruptor-in-chief, and it probably irritates him that Powell gets so much attention at his press conferences," Rogoff thought.

However, ideas of influencing the Fed aren't just alluring to Trump's camp, he said, citing that anyone in power will want to see the central bank ease monetary policy.

"The progressives have ideas for taking away Fed independence too," Rogoff said. "They're not at the tip of the tongue for President Biden or Jared Bernstein and his advisors, but there are ideas floating out there." 

In the view of Dallas Fed President Richard Fisher, the concept of trying to control the Fed typically ends in disaster, an experience learned in countries from Argentina to Zimbabwe.

Despite this, he also cited that Powell was facing pressure from both the left and the right he told CNBC on Monday:

"I can tell you this, I think I know Jay Powell very well as a friend. He could care less," he said. "It's kind of nice to have symmetrical beating up."

For White House onlookers hoping that interest rate cuts help propel a reelection this year, the outlook has turned more and more grim in recent weeks. Though Powell himself suggested optimism about rate cuts in previous commentary, a string of hot inflation has tripped this outlook up.

In fact, futures markets are now forecasting just one rate cut in November, a big shift from when analysts expected three cuts to start in March.