It’s often said that stock markets, whether good or bad, are unfairly linked to whoever sits in the Oval Office. Stocks reflect how investors feel about the economy. The Federal Reserve is the agency with the biggest sway over the economy. And the Fed for decades has enjoyed an independence that has shielded it from whatever political storms may be raging at any given time.
That hasn’t prevented presidents from being evaluated according to how the stock market fared during their terms in office. The Dow Jones Industrial Average more than doubled under Presidents Reagan and Obama, more than tripled under President Clinton and fell 27% under President George W. Bush. Under President Trump, the Dow was up 33% as of last week. Following the recent selloff if the past six days, it’s now up 25%.
Right now, the notion that Trump is responsible for the stock market is strong, mostly because that claim has been hammered over and over—by Trump himself. Never mind that Trump has been president for fewer than two years of a nine-plus year bull market.
In February, when a selloff caused the S&P 500 to fall 10%, the president switched tactics, claiming the stock market had failed to reflect the strong economy. And he had a point: The economy was still steaming ahead, and after the correction ended, stocks powered higher.
Now that the S&P has lost 7% in a little more than a week, Trump is no longer touting—or even doubting—the stock market. He’s passing the buck to the Fed. “The problem I have is with the Fed. The Fed is going wild,” Trump said on an interview with Fox News Thursday. “The Fed is going loco and there’s no reason for them to do it.” That followed comments at a Wednesday rally that the Fed was “crazy” and “making a mistake.”
Trump said Thursday he wouldn’t fire Fed Chairman Jerome Powell, although he added he knew more about interest rate policy than the Fed does. By law a president can only fire a Fed chair for cause, not a disagreement in policy. But simply through complaining, Trump is trying to turn Powell into a scapegoat for any bear market that stains his time in office.
That may cause some heat for Powell, but it’s unlikely to bother the financial markets. If Trump goes further and tries to remove Powell or otherwise influence Fed policy, it could cause him bigger problems.
If investors are on edge now because of this week’s declines, they will be really rattled if the Fed lost its independence. The Fed has two mandates: maximum employment and stable prices. Keeping interest rates low too long risks stoking inflation, which could wreak a kind of havoc the markets haven’t seen for decades.
In the end, no amount of grousing will shake the perception, correct or not, that the President is responsible for the stock market. Most Americans don’t know who Jerome Powell is. They do know who’s in charge of the country. And the time-honored tradition of hanging the stock market’s performance over the neck of the president isn’t likely to go away any time soon.