President Trump blasts the Federal Reserve’s interest-rate increases last week, breaking with more than two decades of White House tradition of avoiding comments on monetary policy out of respect for the independence of the U.S. central bank.
The Fed has raised interest rates five times since Trump took office in January 2017, with two of those coming this year under Chairman Jerome Powell, the president’s pick to replace Janet Yellen.
“I am not happy about it. But at the same time I’m letting them do what they feel is best,” Trump said. In the interview, Trump called Powell a “very good man.”
Since 1977, the Federal Reserve has operated under a mandate from Congress to “promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates”, what is now commonly referred to as the Fed’s “dual mandate.”
The GOP’s tax cuts put the petal to the metal in an already accelerating U.S. economy. The unemployment rate which was heading lower got some extra juice. A 4 percent unemployment rate is very close to the Fed’s goal of maximum employment. However, wage inflation hasn’t show up yet as corporations are increasing dividends and buying back shares instead of increasing employee wages. (So much for trickle-down economics)
The real threat to the U.S. economy is inflation which has started to rear its ugly head due to a rebound in oil prices. The Fed is concern that the Trump administration’s use of tariffs to get better trading deals from all its trading partners will eventually lead to higher inflation. The Federal Reserve can let inflation run a little hotter temporally but it may be forced to accelerate interest rate increases.
Powell addressed Congress last week and told lawmakers that “for now — the best way forward is to keep gradually raising the federal funds rate.” Fed officials have penciled in two more hikes this year. That is one more rate hike then when Yellen was heading the Fed.
The probability that investors assigned to a Fed rate hike in September was little changed near 90 percent after the president’s remarks, while the probability of a December hike was also holding near 65 percent, according to trading in federal funds futures.
Will tariffs clause more inflation and or job loses?
The impact of tariffs takes time to make its way through the economy. Corporations will try to pass on higher input costs to their customers. Higher prices could lead to a decease in sales, causing corporations to cut costs by reducing their work force.
In my humble opinion, it all depends on the amount of the tariff. A 10 percent tariff will add to inflation but a 25 percent tariff will clause job loses.
Case in point, American farmers are feeling the pain of increase tariffs levied by U.S. trading partners.
Trade conflicts “are having a real and costly impact on the rural economy and the ability of rural businesses to keep their doors open,” said Wisconsin Senator Tammy Baldwin, a Democrat, asking Trump to develop a farm plan. “Without prompt action, we could lose farmers and the rural businesses they support and depend on at an even more rapid rate.”
The Trump administration announced that it will deliver US$12 billion in aid to farmers who’ve been hit by dropping prices for crops and livestock amid a burgeoning trade war in which agriculture is a main target for retaliation against U.S. tariffs.
I am confused, Trump wants U.S. trading partners to eliminate all tariffs and subsidies. Yet, he is threatening more tariffs and providing more subsidies.