Presidential Antagonism and Central Bank Credibility

Abstract

This paper uses an online survey experiment to study how President Trump's criticism of the Federal Reserve may affect consumers' long-run inflation expectations, confidence in the Fed, and responsiveness to information about inflation. A random subset of respondents view one of President Trump's critical tweets about the Fed, or the tweet plus a Washington Post article discussing the President as a threat to the Fed's independence. All respondents provide long-run inflation forecasts, before and after receiving information about past inflation and the Fed's inflation target. Finally, respondents rate their confidence in the President and the Fed. Respondents who view the tweet or tweet plus article have final long-run inflation forecasts that are farther from the Fed's target after exposure to information about the Fed's target and recent inflation. Exposure to the tweet plus news article has a polarizing effect on confidence, increasing the share of respondents with high confidence in either the Fed or the President.

Keywords: Federal Reserve, Credibility, Inflation expectations, Inflation targeting, Experiment, Twitter, Trump

JEL Classification: D12, D83, D84, E31, E52, E58