It strikes me that the recent contretemps between President Trump and his hand-picked Fed Board Chairman, Jerome Powell, is illustrative of the competing priorities of Trump and the Fed Board. Here is Chairman Powell announcing an interest rate cut of .25% (25 basis points), to the 2 – 2.25% range:
In the video, he states this is intended to support an economy that he views as still in good shape, continue to support the hot job market, and in general attempt to benefit the American people.
And President Trump’s response?
Germany sells 30 year bonds offering negative yields. Germany competes with the USA. Our Federal Reserve does not allow us to do what we must do. They put us at a disadvantage against our competition. Strong Dollar, No Inflation! They move like quicksand. Fight or go home!
— Donald J. Trump (@realDonaldTrump) August 22, 2019
And
….My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?
— Donald J. Trump (@realDonaldTrump) August 23, 2019
President Trump wants a big drop of 100 basis points or more, despite the fact that would preclude the Fed from maneuvering if the bottom drops out of the economy, because the fact is that the interest rates the Fed are using, as it is, are preternaturally low.
President Trump knows he’s facing political disaster if the economy falls apart, but that’s his catastrophe, not the Fed’s. The Fed’s catastrophe is when the economy goes belly-up, but they have the long-term responsibility, unlike Trump. And Trump’s bad-faith promises are coming back to bite him, because he claimed the economy was a disaster when it wasn’t during his campaigning days, and that only he could rescue the economy. Now he’s President, and he claims to be the only one who can keep it going.
All self-serving, craven lies, but the problem with them is if the economy goes into recession, he’s the guy responsible, even though Presidents have limited control over the economy. They’re really more a function of Congress, and that becomes a complex metric of measurement involving not only growth, but protection of natural resources, national defense, and other factors.
Trump’s getting desperate as his rash promises of easy to win trade wars have come home to nest and crapped all over his tie. If the Fed were to so-rashly drop interest rates by 100 basis points, no doubt it would juice the economy, just like eating a tablespoon of sugar will juice my good reader, but a little later you end up cranky on the couch – if not fast asleep as the cats pisses on you.
But that’s all Trump needs, that little sugar rush. His catastrophe is a bad economy during election season. If he can get over that hump, he thinks he’s home free.
The Fed’s is the long-term depression which leaves us at 20% unemployment – or worse. They approach this interest rate setting business with sober care, especially given the novelty of a trade war.
So we have two similar but different catastrophes to be avoided by the two actors in our drama. A drama that’s all about ego, power-seeking, and the holy tenets of the far-right wing.
Hang on, folks. This ride could get very bumpy.
