At the decade mark for the economic expansion, the Fed's capitulation to President Trump on interest rate hikes imperils the Fed more than the economy. But it can cause the next recession, argues former Fed economist Victor Li.
In just over a month, the U.S. economy will complete 10 years of economic expansion, matching the longest expansion in history. The last time this happened, in March 2001, the economy slid from its lofty peak and into recession. The unemployment rate in the months preceding that recession dipped to 3.9 percent, nearly identical to the current rate.
When President Trump came into office, he inherited a growing economy that had seen the unemployment rate fall substantially over the previous eight years. His own appointed Fed Chair, Jerome Powell, committed to continue the normalization of monetary policy that began under his predecessor, Janet Yellen. This was a prudent policy consistent with maintaining low inflation in an economy that was at full employment.
Recent developments in the ongoing drama between Trump and the Federal Reserve have been anything but encouraging. Although Powell vowed to remain apolitical, the FOMC reversed course at its March meeting, implying that they were done with rate hikes for the foreseeable future and ending their balance sheet reduction later this year.
Even more alarming is Trump's announced plans to nominate two ill qualified partisan loyalists to fill vacancies on the Federal Reserve Board of Governors: Stephen Moore and Herman Cain. Moore, a conservative media commentator, has held vastly inconsistent views of Fed policy, from railing against the post-crisis low interest rates during the Obama administration to echoing Trump's criticism of the recent rate hikes and tighter monetary policy.
Economists have long argued that monetary policy performs best when following rules rather than discretion. The stagflation of the 1970s versus the low inflation of the following decades is a perfect example.
United States Latest News, United States Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Fed up with status quo, Ukrainians tipped to elect comedian as presidentUkrainians began voting on Sunday in an election expected to thrust a comedian w...
Read more »
Financial market 'pause party' makes Fed rate cut less likelyRisk-taking has been the rage since the Federal Reserve quit hiking interest rat...
Read more »
Barty guides Australia into Fed Cup finalWorld number nine Ashleigh Barty continued her recent strong run of form and gui...
Read more »
What You Need to Be on the Fed...and It Isn’t a Ph.D.You don’t need a Ph.D. to serve on the Federal Reserve. The debate, rather, is whether economics and economic models are useful tools for central bankers.
Read more »
Trump’s Fed Nominee Isn’t a ‘Big Believer in Democracy’Trump’s Fed nominee Stephen Moore, in a 2009 Michael Moore documentary, said he isn't a 'big believer in Democracy.' “Capitalism is a lot more important than democracy'
Read more »
Trump’s Fed Attacks Cast a Chill at Global Finance GatheringFormer Federal Reserve officials and foreign central bankers say President Trump’s combative stance toward the U.S. central bank could over time weaken the institution and its role in the global economy.
Read more »
Major Wall Street firm worries about surprise Fed rate hike, says biggest market gains are overseasThe best investment opportunities may be thousands of miles away.
Read more »
As Trump pressures Powell, Wall Street gives the Fed a passing gradeAs President Donald Trump keeps up his attacks on the Federal Reserve's policies, Wall Street is cautiously embracing them.
Read more »
US bank earnings; Advertising deal; Trump criticizes the FedToday’s top business headlines with ChristineRomans before the opening bell: - Trump renews attack on Federal Reserve - Tax Day winners and losers - American Airlines extends flight cancellations - Lyft pulls electric bicycles from three cities
Read more »
Cramer: Trump treats the Fed like a 'pinata,' but don't expect Powell to bucklePowell 'ain't quittin'. ... This is a guy who is doing his job. He's adjusted to doing his job,' CNBC's Jim Cramer says.
Read more »
Trump's tax cut are contributing to the housing-market slowdown, New York Fed findsThe Republican tax reform package passed in 2017 appears to be partly behind the slowing housing market.
Read more »