After
last week's FOMC meeting, the US Federal Reserve clearly signalled
that it was seriously considering cutting interest rates, something
that would have been unthinkable just a few months ago. That
wasn't enough for Donald Trump, who launched another
Twitter tirade against
Fed Chair Jerome Powell this morning, saying that the Fed "blew
it" by not heeding his (Trump's) calls for lower rates.
As
the linked article suggests, it's not just Trump that is trying to
put pressure on the Fed to ease. Financial markets are doing so
as well. It's interesting to consider what's happening here.
Despite the Fed's rate hikes over the past two years, US rates are
well below "normal" levels. The economy is still
growing and employment is rising, albeit a little more slowly than
before, dropping the unemployment rate to the lowest in memory.
So why would anyone on Wall Street think that rate cuts, which might
well cause the economy to overheat, are appropriate at this time?
The
answer, of course, is Trump's trade wars with just about everyone.
There is now a growing fear among investors that tariff battles
against China, and potentially also Mexico, the EU and Japan, could
well push the US into a recession in 2020. That would, of
course, be bad news for Trump's re-election prospects, which now seem
to be the only thing he cares about. The possibility of an
untimely slowdown seems to have wormed its way into Trump's cranium,
prompting him to call on the Fed to bail out the economy -- and his
electoral chances.
In
short, what we see here is Trump, having put the decade-long
expansion at risk with his insane trade strategies, now looking to
bounce the Fed into a potentially risky bout of renewed monetary
stimulus. As with so many facets of this administration,
one bad decision is begetting another.
No comments:
Post a Comment