On
Friday, April 5th, President Trump called for the Federal Reserve to
cut interest rates in an effort to continue unprecedented economic growth since
his election. Historically, the central bank has remained independent of the
Presidential administration. As of recent, President Trump has been highly
critical of the actions taken by the Fed. He believes that interest rate hikes
imposed by the Fed have really slowed the economy. In response, he has called
for the Fed to resume quantitative easing as opposed to continuing their
current policy of quantitative tightening. As he begins his reelection
campaign, Trump aims to focus on his accomplishments regarding the health of
the economy. Economic growth is forecasted to slow within the fiscal year,
however, unemployment remains historically low along with inflation, resulting
in a strong economy. Recently, the Fed announced their plans to halt interest
rates which have jumped four times within the last year. President Trump
announced plans to nominate Herman Cain, and Stephen Moore, to the Feds seven-member
board. Initially, President Trump hoped to achieve consistency within the Fed
after electing Jerome Powell, however these recent nominations show a
transition from the Presidents previous selections. Many remain highly critical
of President Trumps involvement with the Fed and worry that his influence on
the Fed is interfering with the long-term stability of the economy.
4 comments:
Since President Trump's more pro-businessman, increase in interest rates do prevent firms from investing or spending. However I think the Federal Reserve is making the right decisions at the moment. Growth is good, but there are so much National debt to be resolved, which I think may crumble the current stability. I'm pretty sure lots of firms have heaps of debt that they have not paid back after their expansions. There are issues that need to be solved instead of just spending and borrowing more. I also hope the Federal Reserve stays the course, despite who or whichever entity is pressurizing them. They also make mistakes, but so far it seems they know what they are doing.
I think the macroeconomic implications of Trump's rate cuts are interesting. Paired with the inverted yield curve observed in March, lowering already relatively low interest rates would not likely have the effect he's hoping for. I also agree that the Federal Reserve is doing the best thing for the time being by holding rates constant and being patient. The Fed's dual mandate of full employment and price stability are in a good place currently, so there's no pressing need to alter interest rates at this time.
It looks like that Trump wants to lower the interest rate for his own sake. However, I agree on Madison's comment that lowering already relatively low interest rates would not likely boost the economy that far. Since unemployment rate and inflation are performing quite good right now, I don't see too much incentive for Fed to drastically lower the rates, which may hurt the stability of the economy.
The back and forth between Trump and the Federal Reserve (mostly chairman Powell) has definitely been a key aspect of this presidency. While the Federal Reserve thinks it is in their best interest to slow down the expansion of the economy, Trump definitely thinks the economy can be pushed to new limits. Since they have decided not to raise rates for the remainder of 2019, and the economy and market has performed in conjunction with this positive factor, I honestly think that Trump is only looking for a way to try and boost his standings and rally his followers. With a strong economy as a pivotal part of his term, I am curious about the way that he would handle an economic downturn when there is already so much disagreement in positive times.
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