On Friday, President Trump Escalated his Feud with the Fed over interest rates.
Vice President Mike Pence and White House National Economic Council Director Lawrence Kudlow—echoing President Trump’s comments Tuesday—called on the Fed to lower interest rates, saying the economy’s engine could handle more fuel.
“The economy is roaring,” Mr. Pence said Friday in a CNBC interview, not long after the Labor Department reported the jobless rate had fallen to 3.6% in April, the lowest level in 50 years. “This is exactly the time not only to not raise interest rates, but we ought to consider cutting them.”
It isn’t unprecedented for politicians to lean on the Fed to cut interest rates and give the economy the kind of jolt that voters reward at the polls. President Nixon pressured Fed Chairman Arthur Burns to keep rates low right before the 1972 election.
But it is rare for the White House to take on the Fed so openly, analysts said. “It not only breaks the norms, it shatters them,” said Laurence Meyer, a former Fed governor. “It’s just amazing.”
Just Amazing
The amazing thing is not that Trump is doing anything unusual. The unusual is the norm.
Rather, the amazing thing is the logic the administration used.
If you can’t hike rates when the “economy is booming” then you can never hike rates because you don’t hike rates when the economy is doing poorly.
Economy Booming?
We can debate whether the economy is booming. Despite Friday’s jobs report, it’s pretty clear the economy is slowing.
But that’ not the argument Pence presented. Pence wants to cut rates despite his claim that the economy is booming. That’s the amazing thing.
Mike “Mish” Shedlock
But it is rare for the White House to take on the Fed so openly, analysts said. “It not only breaks the norms, it shatters them,” said Laurence Meyer, a former Fed governor. “It’s just amazing.”
Norms is a restaurant.
Pence is just a puppet of his boss. The trump administration is seriously functioning how dictatorships function. Literally every decision is at the whim of the dictator. Fortunately we have two other branches of government. It is only a matter of time before Trump is thrown out of office imo. This may happen before the 2020 election.
At some point people will realize that economic growth matters less than liberty and freedom and oppression.
Don’t these people realize that 10,000 people a day are turning 65? Most of them are one bad day away from chucking it all and retiring. Well they would be if they knew their meager savings might be enough to live on for another 30 years. So they keep working.
Then because they keep working no one moves up. We all just slog along, getting our annual 1.5% “merit increase” if we don’t blow up anything. Young people are stuck in entry level jobs. And the old timers (who aren’t dying thanks to medical advances and our winning the war on germs) are hoarding because they know their children won’t be there to take care of them when they can no longer maintain their homes.
Then when they actually do pretend to take action by raising interest rates by the laughable amount of 1/4 point, the reaction by politicians and Wall Street is to throw a temper tantrum. Because apparently the economy is running at perfection and don’t dare change anything ever. If you have a 6 figure salary today you should always have a 6 figure salary. If your job title is “supervising manager” you should always be a “supervising manger” no matter what. And you should never retire because look at what happened to that guy who did -he was dead in 20 years! John McCain died in office, and he had a wonderful life. Sir Ian McKellen’s still making movies at 79. Tim Cook (age 58) is a young go-getter in comparison.
When does it end Miss…that is the question. When do we have to bite the bullet and start to be more fiscally responsible?
When a meaningful, and growing, number of voters start growing up and backing populist candidates who champion outright default.
Such a candidate doesn’t need even close to a majority, to have a meaningful effect. As his mere growing popularity, increases the risk to foreigners of handing Washington their money. Which can quickly set up a virtuous circle: Of higher interest rates leading to more support for defaulting leading to yet higher rates leading to yet more support for default and so forth and so forth.
No doubt with the leeching classes doing their darndest; from writing mindless speeches about “full faith and credit” and “our debts,” to outright banning “seditious” “populist” speech and signing over Federal land which the toiling classes have been paying taxes for as “collateral”; in order to try putting the genie back in the bottle, and quell the slave revolt.
The ball just has to get rolling; and at some point, the resulting dynamic will take on life of it’s own.
Just curious – how are all of you folks who think the FED is FUBAR positioned wrt your investments? In other words, how are you preparing for the jump in inflation that you think is just around the corner?
No jump in inflation around the corner. Any jump in inflation will be followed by a deflationary spiral like 2008.
If you read these comments (aside from yours) they are almost uniformly about how stupid the FED is, they (the FED) just don’t get it, their concern is simply to prop up the stock market, it will all end badly, etc.
Ok – fair enough. I do not agree, but if you actually believe such stuff then I am curious as to how you are positioning investments? I know someone who for the past couple of years has believed a stock market rout was just around the corner, so they are in cash and short term treasuries. That has cost them a lot of $$.
What did you expect, we live in Clown World. One day this will blow up in spectacular fashion.
Expecting today’s politicians to be able to soundly run a financial system is like trying to get a junkie off dope, they don’t learn until they have several near death experiences.
Noone can run a “financial system.” Becasue noone can “run” any “system.” If “running” “systems” was even theoretically possible, communism would work. Doesn’t, hence, not.
Pretending one can run a system, is certainly a way to justify robbing, harassing and lording over others, to one’s own benefit. Just like falling for the nonsense that someone can, is a surefire way to be robbed, harassed and lorded over. Solely for someone else entirely’s benefit.
Can you blame him?Looked at that(simulated) jobs report and saw the continued collapse of the tax base,Less people working now than when LBJ was president…ouch.
But that’s capitalism. That’s greed. What capitalist doesn’t want $2 million when he’s got $1 million? It could also be a sign that though he won’t say it, he fears the economy IS slowing down.
What is this brain disease called, cognitive dissonance? There seems to be an epidemic.
Optimism.
Has there even been a presidential team with a higher ignorance score ??
They’re not ignorant — they just want the party to continue beyond the next election.
Local grocery inflation is 30% because of a new $11/hr minimum wage. Local rent inflation is 10% because of no campus housing, student loans, and Chinese robber barron children paying $60K tuition. Gasoline inflation is 20% over last year. Construction is everywhere. The state borrows free money to build an elevated public transit train. Everyone has money. A burger, fries, and craft beer at a sidewalk cafe is $10. Premium coffee is $2.50 per cup. Construction workers drive boss four seat trucks. Set up another punch bowl. The party is just getting started.
Cut rates down to what? Zero? Somebody needs to explain to our Vice President about the liability side of the balance sheet, namely debt and unfunded government liabilities. Good Lord.
Pence is simply following his President’s instructions. It’s about leaning on the key people at the right time. 2020 is where it’s at and the stock market is looking peaky.
Why Fed Chair Powell is a Laughingstock
Just this week, for example, Powell zoomed in on the dots and concluded that the federal funds rate should remain within a range or 2.25 to 2.5 percent. At the same time, via an implementation note, Powell lowered the interest on excess reserves (IOER) rate 5 basis points to 2.35 percent.
It is possible that Fed Chairman Powell is trying to navigate a course that doesn’t cause the dollar to strengthen to where it devastates emerging markets creating massive instability. The dollar holds a special place in the world currency market. Following Friday’s strong job report it is surprising we are not hearing anyone talking about raising interest rates or how this may be inflationary. The article below explores Powell’s actions.
The idea that the FED cares about the IM is questionable. Back when Bernanke was warming up the printing presses, China, a big treasury customer, voiced displeasure that this dilutes her holding of treasuries (for which the Chinese sweatshops have to work hard). They were told to mind their own business. They took the cue, started BRI, and got the wagon of de-dollarization going.
I read your article this morning and agree 95%. Most people roll their eyes at me when I say this but there is only one currency in the world and it’s the dollar. The yen and euro would have been sunk long ago without the dollar support. The task master owns them now and is slowly tightening the Gordian Knot. I agree with your end statement the same people that run the system now will run the new world currency.
Fiat end-game well underway, and clear for all to see.
If we were only so lucky…
I agree with Bam. There cannot be a simple re-run of post-GFC emergency policy. This time the game is up. ‘Japan’ is not our future. We are what has kept Japan from imploding in the 1st place.
Venezuelans are still being debased by fiat printers…. And they are, if humanly possible, even further down the road to an undifferentiated, progressive hellhole than “we” are……
As long as there’s anything, at all, left to steal, thieves can continue making a living. And hence keep the theft rackets going. Unless those who are designated patsies in the theft rackets grow up, and do something about ending them, they can go on for a long, long time.
What will, always does, happen, is more and more layers of thieves will get peeled off. Such that more and more of those who used to on the beneficiary side of the rackets, are shunted off to the robbed side, in order to protect the core as the general economic deterioration worsens. Think all those house flippers/homeowners who used to ride high in SUVs and on custom choppers pre 2009; but who are now shifted to the “indentured” side of the ledger. But a long, long time can pass, from when those outer layers of the rackets first get peeled off, before Goldman Execs and Nicolás Maduro finally run clean out of things to steal, and is left (deservedly so) starving to death on the streets of New York and Caracas.
Seems our system is in the nursing home. Trying to squeeze a few more years out of grandma at any cost.
That pretty much sums it up. I don’t see the existing monetary/economic system surviving the next crisis. Once the printers get going in earnest folks are gradually gonna realise that, actually, it’s game over.
Once again, the Fed is not driven by the US economy, but by international pressure to keep rates low to avoid the debt bomb from going off. Foreign holdings of dollar-based debts is massive, and an increasing dollar and rates is and will implode budgets. The consequences of low rates is to savers, pensions, social security, etc. – problems for another day.
Savers and pensions have done extremely well with the low rates. Its higher rates that will kill savers and pensions, as such would be associated with higher inflation.
Please explain how people on fixed income are better off when rates have been near zero for 10 yrs. I’ve got a better idea. Go down to your favorite retail establishment and ask the retiree behind the cash register if their savings is doing extremely well.
The majority of pension investments must be in treasuries, and all of the promises in SS are backed by treasuries. Go look at the performance of pension funds, which typically need an 8% return to meet obligations. Most are well below 4%.
There will eventually be inflation as capital flees govt bonds for private assets, but deflation and a stronger dollar has at least a couple more years to go. Higher rates allows interest income to keep pace with inflation, assuming the bonds are laddered. The reality is savers should not be in unbacked govt debt, and should be in dividend paying blue chip stocks, especially as they become the safe haven. Unfortunately, in a couple more years inflation will be the least of their worries.
More cowbell!
Lol