Anyway, garnering less news as Trump slobbered all over Putin's lap was the incident in which Trump objected to the Federal Reserve Board continuing to raise interest rates. Normally, presidents stay silent on monetary policy, but here's what Trump said: He said he's "not thrilled" that they are raising rates, that every time the economy grows, the Fed raises rates to choke off that growth, and, "now, I'm just saying the same thing I would have said as a private citizen."
Spoiler alert: Trump is a shameless, craven liar. And an idiot.
In 2016, when Trump was running for president, he said that Janet Yellen should be "ashamed of herself" for not raising interest rates more. Back then, the economy was not doing as well. It was doing well, just not as well. Thus, the case for keeping rates low was stronger, but Trump wanted rates to go higher. He accused Yellen of keeping rates too low to create "false markets," whatever that means. Remember, the economy was weaker then, so the case against raising rates was stronger.
Why did he want rates to go up? OK, realistically, he didn't. Trump didn't know anything about monetary policy. He doesn't know anything about anything. It was just something that Republican economists said during the Obama administration, and he was repeating what he heard like a parrot. OK, that's not fair. I like parrots, and parrots can be trained. Conservative economists have been screaming about looming hyperinflation for a decade, which of course, hasn't materialized, and this argument appealed to Republicans for partisan purposes during the Obama administration. If you were a Republican during the Obama administration, and cared more about partisanship than the economy, you wanted the economy to tank to help your party win the next election. If Yellen had jacked up interest rates out of the fear of the phantom inflation that never materialized, the economy probably would have crashed, and solidified Republican electoral gains. That's why some Republicans latched onto the rhetoric, separate from the economists afraid of the inflation-monster hiding under their beds. I'll get to actual inflation in a moment.
Trump, now that he actually is President, has flipped that. He thinks that low rates are good because they mean economic growth, so while he was pissed at Yellen for keeping rates too low during a weaker economy, now he's pissed at Powell for keeping them too high in a stronger economy, and claiming that it's the same thing he would have done as a private citizen. Lying dipshit...
So, reminder: the Fed is supposed to find a balance between unemployment and inflation, based on the premise that as unemployment goes down, inflation goes up, and as inflation goes down, unemployment goes up. The relationship is murky. After all, we currently have low unemployment, but low inflation. Why? Is it that a bunch of people never went back into the labor force, leaving it all to the labor force participation rate? Is the Phillips Curve wrong? I'm not going to do a thorough literature review here, because this is just a morning blog post, but this is complicated stuff. Far too complicated for someone who cannot handle a thought more complicated than, "will this please my dear, sweet Vlady?"
What Powell is doing, though, is slowly raising interest rates. Why? At some point, we'll have a recession. Why? I dunno. They happen. External events... stuff... whatever. When those happen, our best response is to lower interest rates. We can't do that if our interest rates are already so low that we can't lower them any more. We need room to lower them. When the economy is doing well, raise them so that they can be lowered when things get rough. However, do it slowly so that you don't cause the recession in the process. That's what Powell is doing. Is there a case to be made for not raising rates at all, or even more slowly? Sure. Inflation is still very low, and wages aren't rising, so we don't see signs of inflation danger, and the labor market can still improve. Thus, perhaps the risk of causing the recession is greater than the risk of inflation, but there's nothing odd going on here.
From Trump's perspective, what is interesting is that he sees no danger of inflation. Inflation was, once upon a time, a presidency-killer. The idea of the Fed raising rates to prevent inflation while giving it the tools to fight a future recession now scares the crap out of someone like Trump, but if Powell is doing his job properly, and preventing inflation, that helps Trump. And he doesn't even see it. One of my preferred forecasting models for presidential elections is the "Bread and Peace" model, developed by Doug Hibbs. He uses, for his economic variable, RDI. Real Disposable Income, which is useful because it incorporates inflation. That would be the "real" part of the title. Back when inflation was a regular concern, that mattered. The Fed has gotten a handle on inflation, and we haven't had to live with it for a long time, but that's to the benefit of presidents, who have, in the past, suffered for it at the polls. Of course, a twit like Trump would never understand this. He can't understand the economics, the history, or anything like that. He just flipped on a dime because he thought that low interest rates helped the sitting president. So, he hated them when Obama was President, and now he wants them as President himself.
Miles's law.
