Donald Trump on Monday added the Federal Reserve to the long list of elite institutions he believes are in the tank for his political enemies, asserting that the central bank is helping President Barack Obama by inflating a stock market bubble through low interest rates.

“We have a very false economy,” Trump told reporters during a Labor Day campaign swing in Ohio. “At some point the rates are going to have to change.”

“The only thing that is strong is the artificial stock market,” he said.

Trump, Reuters reported, has alluded to the charge in the past, claiming the Fed is keeping interest rates low for “political reasons.”

Hillary Clinton responded on Tuesday by criticizing Trump for breaching protocol surrounding the independence of the central bank. She argued that presidents and presidential candidates should not comment on Fed interest rate decisions at all.

Whatever one thinks of Clinton’s institutional critique ― Bernie Sanders, for example, would clearly disagree ― Clinton could just as easily have attacked the substance of Trump’s remarks.

Like many of Trump’s allegations, this one is demonstrably false.

There is no evidence of a stock market bubble. And if there were, raising borrowing costs throughout the economy by increasing the Fed’s benchmark interest rate would be a terrible way to do it.

Dean Baker, co-director of the Washington-based Center for Economic and Policy Research and one of the few economists to predict the late-2000s housing bubble, sees no signs that stocks are dangerously overpriced.

Adjusting for economic growth, Baker estimates that stocks are one-third lower in value than they were in 2000, when there was a real stock-market bubble.

But if there were such a bubble, economists like Baker argue that hiking interest rates would amount to using a proverbial shotgun on a problem that requires a more precise weapon.

The Fed has a dual mandate to maximize employment and prevent runaway price inflation by raising or lowering the target range of the federal funds rate. That is the interest rate banks charge one another for overnight lending, and it is a benchmark for interest on lending throughout the economy, such as mortgages, cars and student debt.

Raising the federal funds rate could make it less attractive to buy stocks by increasing the costs of borrowing to buy stocks and providing greater return on other forms of investment.

The collateral damage from such a move would be significant though. Higher interest rates across the economy mean less money in consumers’ pockets, which would slow economic growth and the pace of job creation.

The Fed could just as easily use its bully pulpit to call out runaway investment in certain sectors or tighten select regulations on financial institutions to deflate overvalued assets. Those techniques could burst a bubble without bringing the economy down with it, many economists insist.

If the inflation rate were rising, getting to 3, 4 percent, Trump would have a good case.
Dean Baker, Center for Economic and Policy Research

Trump is right about one thing: The economy would be much worse off if the pace of rate increases had been faster.

But rather than merely helping Obama ― and, one assumes, Clinton, his party’s nominee ― the central bank has simply crafted monetary policy that is consistent with their dual mandate.

The damage done by the Great Recession in the wake of the financial crisis was so great that even a record streak of net job creation has failed to heal the labor market.

The official unemployment rate may be a rosy 4.9 percent, but other figures reveal that the country is still suffering. When counting workers who have given up looking for work or want to work full time but can only find part-time hours, the unemployment rate is 9.7 percent.

Congress, which would normally stimulate consumer demand with tax cuts or spending increases, has insisted on austerity, warning that deficit spending would spark hyperinflation.

Instead their efforts have limited the government’s tools for ensuring an adequate recovery, even as the inflation they warned about has failed to materialize.

The Federal Reserve, by contrast, has won the moniker “the only game in town,” because it has refused to do the equivalent on the monetary side of the equation by raising rates as rapidly as hawks have wanted it to do.

For seven years after the financial crisis, the Fed kept the benchmark federal funds rate at a range of 0 to 0.25 percent. The Fed raised it to a range of 0.25 to 0.5 percent in December, where it remains.

“If the inflation rate were rising, getting to 3, 4 percent, Trump would have a good case” that the Fed is somehow interfering in politics, Baker said. Inflation has yet to reach 2 percent, the Fed’s target rate.

If anything, the Fed is more concerned about inflation than it needs to be. The central bank has hinted that it will raise the benchmark rate one-quarter of a percentage point when its policymaking committee meets later this month, despite a lackluster August jobs report and the protests of economists like Baker.

As usual, however, it is hard to know which of Trump’s positions on the Fed to take seriously. He made similar rumblings in August 2015 about low rates inflating a financial asset bubble.

But in May, he said rates needed to stay low so as not to boost the value of the dollar and hurt U.S. exports. He also suggested that he would replace Janet Yellen as Fed chair, not for policy reasons, but because she is “not a Republican.”