Posted on 10/25/2018 8:03:13 AM PDT by reaganaut1
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[N]o Fed Chairman can afford to be seen by markets to be taking interest-rate dictation from the White House, and when they do it typically ends in tears. See Arthur Burns under Richard Nixon and G. William Miller under Jimmy Carter. Alan Greenspan and Ben Bernanke were also too cozy politically with administrations in power, but that influence was mostly behind the scenes.
Poor Mr. Powell has the harrowing task of managing the transition from the largest experiment in monetary-policy history. Mr. Bernanke and later Janet Yellen enjoyed the ride down to near-zero short-term rates and unprecedented bond-buying to keep long-term rates artificially low. The policy pushed investors into riskier assets such as stocks even though it didn’t do much for a real economy that grew slowly during the Obama Administration.
Growth and animal spirits have revived with Mr. Trump’s policy mix of tax reform and deregulation. Now Mr. Powell has to manage the more treacherous monetary road back to normalcy, and Mr. Trump’s public battering won’t make the Chairman’s job any easier. The Fed has signaled it will raise short-term rates again in December, the fourth time this year. Mr. Powell won’t want to look like he’s backing down under political pressure—even if economic events suggest he should.
A better criticism of the Fed would be that it should have unwound its massive bond portfolio first and faster than it has. That would have loosened the Fed’s control over the long-term bond market, encouraging an earlier adjustment out of risk assets before the Fed also began raising rates.
Now the Fed is doing both at the same time, with more risk for asset prices and greater political risk for the Fed.
(Excerpt) Read more at wsj.com ...
That’s the whole problem. Our monetary system should not be under political control in the first place.
Alas. Under whose control should it be?
So, Jay Powell may arbitrarily raise interest rates to spite PDJT? Is the ‘fed’ so entrenched in the system that it can’t be gotten rid of? If one looks into the history of the fed one comes up with a pretty disgusting uber wealthy scheme that’s still in play today. They didn’t get rich by NOT making up their own rules.
If were still on a gold standard I would favor keeping it, but I don't think we are giving up fiat currency. In that case, the monetary system will be subject to political influence, although central bank independence is supposed to reduce that influence.
Now Mr. Powell has to manage the more treacherous monetary road back to normalcy,
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Inverting the yield curve isn’t normal and some on the Fed’s Open Market Committee, that manipulates interest rates, agree with that.
Insert laugh track here. Identify, Isolate, Freeze, and destroy. Trump does not have to play by the cowering Rino playbook.
You’re right. It is too late to fix. The problem lay in the creation of the Fed itself and the lack of realization that its board members would all become political hacks.
As it is the only thing that keeps the fiat money system from collapsing is that the rest of the world simply can’t risk calling it into question. Collapsing the US economy would send the rest of the planet back to the Dark Ages.
Yahoo Finance is in the boat with the WSJ - they were wondering why there was no sign of panic with the big drop.....
Powell gets one vote out of twelve on the Federal Open Market Committee, which votes on interest rates. Recently their votes have been unanimous, indicating that Powell is not an outlier in his desire to raise rates.
Yeah, sure, what an idiot Trump is. /s How dumb is this guy? Lol.
He’s so stupid, what can he ever amount to? /s (just a Billionaire and President of the United States)
Thank you Mr. President for all the WINNING! Not sick of it yet.
It was criticism like this that ignited the great inflation of the 1970’s and early 1980’s. Every time the Fed tried to raise interest rates to contain a steadily rising inflation, some interest group would complain, the Fed would back off, and inflation got higher and higher. Nixon tried to contain inflation br price controls, but that only made it worse. The inflation ended only when the Fed refused to back down, pushing the economy into a recession. Fortunately, the recession ended and the economy sprinted due to Reagon’s supply side policies. We might not be so fortunate this time because the Democrats are more able to block growth oriented responses to recession.
This article misses the whole point of what Trump is doing.
The author suggests it’s counterproductive for Trump to criticize the Fed chairman for raising rates, because the chairman can’t be seen taking orders from the Whitehouse.
But the purpose of Trump’s public criticism isn’t to badger the Fed into lowering rates - he knows that won’t happen. The purpose is to lay the blame for any resulting slowdown at the Fed’s feet.
The economy has been wonderful during Trump’s first two years and he has capitalized on that politically, as he should. But everyone knows that what goes up must come down. The trick is to take credit for the “up” while not taking the blame for the “down”.
Trump’s sound economic policies are certainly good for the economy over the long term - deregulation, tax cuts, better trade deals and putting America first - Trump is no doubt the economy’s best friend for the long run - and in the long run, it’s not about politics its about fundamental economic principles.
But having said that, a POTUS would be foolish to think that implementing sound economic policies alone would ensure short term economic success. In the short run, there are many wild cards - the Fed, trade war retaliations, demographic trends, and the normal ebb and flow of the business cycle - to name a few.
Trump has to have a story to tell when and if the economy takes a dip during his presidency. Trump is setting up the Fed to take the blame if there is a recession - this is smart for two reasons:
1) Politically, it’s obviously good to point the finger elsewhere.
2) Economically, if the public blames the Fed’s interest rate hikes for a slowdown, the Fed will feel public pressure to lower them again.
Unfortunately, with our system of fiat currency, there is no pure market for establishing what rates “should” be. It is subjective - all policy makers can do is try to guage the effect of rate increases and look for early signs that rates are too high or too low - when they are too low, capital investment suffers, because investors lack incentive to invest. If they are too high, growth suffers because consumers choose to invest rather than spend, or choose to avoid expensive borrowing.
With the absence of a commodity backed currency, there is no concensus regarding what Fed policy should be, what signs to look for, what benchmarks to measure by.
Politicians, like Trump, must put pressure on the Fed to act in the best interest of we the people. I think right now, the message of we the people is that we want to continue to give Trump a chance to guide the economy according to his business instincts - I know that’s what I want to see happen.
If Trump thinks interest rates are being raised too fast, that’s good enough for me. I hope he continues to blast the Fed loud and clear, and that the Fed is held accountable by the public for any downturn.
With enough public outcry, the laws governing the Fed CAN be changed - and its about time they were.
Trump is not wrong about the interest rate increases ballooning payments on the national debt.
He can attack Powell all he wants, but it’s the Fed Open Market Committee that determines interest rates and Powell is a single vote on the committee. If Trump wants to influence the FOMC decisions then fill the three current openings on the Fed Board of Governors with people who think like he does. That won’t guarantee the FOMC will vote in his favor but it’ll improve his odds.
Trillion dollar deficits are increasing the cost of servicing the national debt than interest rate increases are.
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