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Posted on 04/22/2025 4:24:47 AM PDT by karpov
If Donald Trump is upset about higher interest rates, he should stop doing just about everything he can to undermine the U.S. economy in the eyes of the world. As the U.S. becomes a riskier place to do business because of tariffs and fiscal uncertainty, and the independence of the central bank comes under threat from the president, people will demand higher yields to make buying U.S. sovereign debt worth their while.
Maybe you think Trump’s trade policy has merit or the Federal Reserve needs to be brought more firmly under the president’s control. That’s a separate question from how real investors with real money in the real world are really reacting to Trump’s decisions. Their verdict is clear: They don’t like it, they’re going to keep saying so with their money as long as the president doesn’t change course, and that has real negative consequences for Americans.
The stock market is down, and that’s bad. Worse is the simultaneous decline in the value of the dollar and the price of U.S. government bonds. That’s more akin to what happens in poor countries facing economic crises, not in the richest country in the history of the world.
Even during the Great Recession, which began with a financial crisis originating in the U.S., investors worldwide fled to the safety of U.S. government bonds. They fled to the safety of the U.S. dollar in currency markets. The U.S. position was so rock-solid that even the worst downturn since the Great Depression couldn’t shake it.
Now, the story is different. And part of the reason why is a president who feels unconstrained by constitutional, statutory, or economic arguments against exerting unilateral power whenever he feels moved to do so.
It would be one thing if Trump had a fleshed-out economic plan and was sticking to it. Aside from any questions of the merits of his decisions, though, investors first and foremost have seen uncertainty and lack of credibility. Tariffs are on one day, off the next. One of the reasons the Founders made tariffs, and taxation more generally, a legislative matter is that they knew how important it was to have certainty in tax policy. Even more than trade, certainty and credibility are vital to monetary policy. Trump’s recent pressure on Federal Reserve Chairman Jerome Powell to cut interest rates, combined with reporting suggesting that he desires to fire Powell, is spooking investors as few other things can.
The reason is that politician-driven monetary policy has a decades-long record of failure in countries across the globe. Countries with independent central banks have greater credibility to stick to inflation targets and weather instability. Basically every rich country has one. The Federal Reserve has become more independent over time, and inflation has generally run much lower since then.
The Fed still makes plenty of mistakes. It stayed in emergency mode for too long during Covid, overshooting the increase in the money supply and contributing to the inflation that occurred. It did so, however, by keeping interest rates too low, the exact thing that Trump is now encouraging.
Trump always wants low interest rates. He bugged Powell about it during his first term, too. (That’s the same term in which Trump appointed Powell chairman, by the way.) From a politician’s point of view, low interest rates mean lower car payments and mortgage payments, which make voters happy in the short term. But it can also contribute to inflation, which, as Democrats can tell you by pointing to their scars, voters really hate.
Independent central banks help to mitigate that problem by removing the money supply from the direct control of politicians. The Fed has also branched out into other areas beyond the money supply, pontificating on inequality, climate, race, and other issues. Trump could rebuke these errors by calling for legislation from Congress to better constrain the Fed to its proper place.
Powell’s term as chairman is up next year regardless. By insisting that the next chairman single-mindedly focus on macroeconomic stability and keep a healthy distance from politics, Trump could help put the Fed on a better path.
But he isn’t interested in that. He wants lower interest rates, and Powell isn’t going to give him them at the moment. He also wants the power trip of firing the chairman of the Federal Reserve, who can only be fired by the president “for cause,” according to the Federal Reserve Act. Disagreeing about interest rates is not such a cause.
There’s a constitutional argument to be made that such a restriction on the president’s power is impermissible. But it shouldn’t even get to that point, because firing Powell is not helpful to Trump’s own interests.
Voters want economic stability, and firing Powell would only create more instability. The market consequences are dire, and not just for “Wall Street.” State-level Republicans are looking at depressed revenue forecasts and hearing warnings from their pension funds about shortfalls because of investment losses. Manufacturing firms in the middle of the country are warning about higher prices, and some are announcing layoffs. Millions of Americans at or near retirement age are seeing their savings disappear.
The ballooning federal debt also becomes harder to finance if demand for government bonds declines. That’s the same federal debt that Republicans made it their policy to ignore in the platform adopted at the 2024 national convention that nominated Trump, a promise they are keeping in their budget resolution. That means future tax increases, inflation, or both are on the way.
One way to avoid chaotic and ill-considered trade and monetary policies is to keep any one person from being able to change them at will. That has been the traditional American practice, and it would be best to follow it.
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The Feds War on MAGA is more like it.
I go with the general rule that whatever the NR editors are pushing is the opposite of how things should be seen.
End the Fed
I’m a fairly young guy and I’m looking to buy a home. I’m waiting for prices to come down but it just seems like people are stubborn with their prices. Where I live, everyone is selling their boats, extra cars, RV’s, go-carts etc. They have them parked in front of their homes or on greenbelts with for sale signs. They can’t afford the gas and maintenance and insurance. They are selling their toys. Unfortunately, the prices on the signs are outrageous. You can’t expect to get your money back in an economy like this. I am hoping people get realistic soon? There are many homes in my neighborhood that are above a million dollars and I don’t think I can afford that. The supply is very high but the rates are bad and people are inflexible at the moment.
Give them a low ball price, cash. They will come down for a boat or car.
PS: If you need the money when you are done you can sell the trailer.
“I’m a fairly young guy and I’m looking to buy a home. I’m waiting for prices to come down but it just seems like people are stubborn with their prices.”
When Mrs. BBB333 & I bought our property and eventually built we paid $3,500 to buy the interest rate Doen from 8.5% to 7%.
Buying the land, design, getting the correct contractor was DIFFICULT!
Nothings easy about the process...
Good luck.
I detest NR, but they are just pointing out the obvious here. Reducing the Federal Funds Rate to 0.1% is pointless when 10-year Treasury bonds are being issued at 4.5% and gold is trading near $3,500/ounce. Investors are losing confidence in the value of the U.S. dollar as a reserve currency. No amount of tinkering by the Federal Reserve is going to change that.
The WSJ and NR are one and the same mouthpiece. They are warmongers and corporatists without shame.
If it doesn’t matter then do it.
Selling your home at a steep discount to a relative who was just evicted from his home for non-payment of rent doesn’t work out in the end for ANYONE involved.
We don’t need interest rates being pushed lower by the Fed, just to benefit borrowers at the expense of savers. Without lower taxes (including tariffs), less regulation, and lawsuit reform, the lower interest rates will produce inflation and punish savers.
That’s good advice. I’ve actually been looking at land around here, the other day I saw a small unremarkable lot in a bad neighborhood and when i scanned the QR code on the sign for the price it was $350,000. I thought, I’m not going to live in the ghetto and worry about crime for a small $350k piece of land. Anyway, thanks for the advice. I’ll keep that in mind
I’m with them on not liking Trump’s on-again/off-again public tariffs negotiations, but the NR studiously ignores and denies the underlying strategy and critical need for the core components of Trump’s policies.
Powell has taken pot-shots at Trump like John Roberts has, and Trump’s retaliatory rhetoric has been about as effective as it has been against Roberts.
I hold to the NR editors being useless and pompous bozos.
BREAKING: 3rd Would-Be Trump Assassin Plotted with Telegram Account Linked to Ukrainian Cell Number — We’ve Identified the Account and Individual It’s Registered To
https://www.thegatewaypundit.com/2025/04/breaking-3rd-would-be-trump-assassin-plotted-telegram/
Trump, unfortunately, has never heard of regime uncertainty.
Make sure there are NO HOAs. We bought a starter 11 years ago, to downsize, for 2 seniors. VA LOAN was 3.2%, paid it off in 6 yrs. Now I wish we’d moved further away from Memphis, and to a bigger lot like an acre.
The problem that creates a tension between Powell and Trump is that they are trying to bail out the ocean with a teaspoon. In other words, $46 trillion or $47 trillion debt accumulating at the rate of $1 trillion every 100 days means that the slightest tremor can knock these two gentlemen off the tight rope where the profligacy of the country has placed them.
If Powell reduces interest enough to stimulate the economy and maintain employment for political reasons, as the Fed did on several recent occasions described as QE, he risks the bond vigilantes staying away from the window. If, on the other hand, Powell raises interest rates high enough to assuage the doubts of bond purchasers who fear inflation, he could tank the economy.
Enter Donald Trump with his tariff war, whether for good or ill, whether wisely or unwisely, whether necessary for the ultimate survival of the nation, his tariffs certainly induced tremors. It appears that some of those tremors were caused by the Chinese selling US bonds hand over fist. At any rate, the tremors evidently caused Trump to pause his tariff war, while admitting that the pause was due at least partially to market queasiness.
Politicians like Trump, who are forced to navigate the tight rope, would naturally prefer the Fed to err on the side of supporting employment. Hence Trump's jawboning Powell. Assume
Powell's rejoinder is almost a plea for understanding of his predicament and the difficulty of balancing on the tight rope. Like Goldilocks, he can neither be too hot nor too cold.
Our state of extreme indebtedness is precarious; we will be damn lucky if we can get off the tight rope as rich as we are today.
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