Editors at National Review Online offer the president some free advice.
It’s no secret that the U.S. government is highly indebted, and it’s no secret that the larger any tab the more nervous creditors become. The more nervous that creditors become, the higher the price they will ask in return for lending their money. Given the amount of debt that the U.S. has piled up and the amount of new debt (including that needed to replace debt that has reached maturity) that it has to borrow each month, any increase in interest rates — the price that creditors charge for lending their money — will be very expensive indeed.
To hear President Trump tell it, however, high interest costs are wholly the fault of the Federal Reserve chairman he appointed. There is nothing new about a president grumbling about a Fed that has allegedly kept interest rates too high. But the president has gone beyond complaining to threats. Those threats include attempting to fire Jerome Powell, possibly on the pretext of cost overruns in the renovation of the Fed’s Washington HQ.
The more pressure from the White House, however, the more difficult it is for the Fed to agree to the rate cuts that Trump wants. The last thing that potential bond buyers want is a central bank that buckles under political pressure. Even if there were a case for reducing rates, the Fed will now have to go the extra mile to demonstrate that such a cut was not the result of pressure from the White House.
As it happens, we do not think that a convincing case has been made for rate cuts. Inflation picked up in June, from an annual 2.4 percent to 2.7 percent — in line with expectations, yes, but expectations that are themselves too high. We are well above the Fed’s long-term target of 2 percent.
Rate cuts now risk drifting toward even higher inflation. Rate cuts under political duress would raise that risk further — and so, even more, would an irregular change at the top of the Federal Reserve.
The post Urging Trump not to fire the Fed chair first appeared on John Locke Foundation.
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Author: Mitch Kokai
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