I don’t think that I am alone in being sick and tired of hearing Donald Trump bang on with his threats to fire the Fed chair Jerome Powell. For goodness’ sake – just put a sock in it.
This constant whining and moaning about the Fed not cutting interest rates is getting very tiresome. Sure, many people would like to see a lower cost of borrowing. But interest should only be cut when the conditions are right.
Simply droning on about interest rates is not going to bring down inflation. Ironically, the path to lower inflation is in the hands of the Trump administration. If the US wants to lower the rate of inflation, then it should ditch the crazy idea of imposing tariffs on imported goods. It couldn’t be any simpler.
It is interesting to note that there was no mention by Trump to fire the Fed chair when the latest consumer prices index for June was released on Tuesday. It showed that inflation accelerated to a five-month high of 2.7% from 2.4% a month earlier.
But when the June producer price index came in unchanged at 2.3%, Trump wasted no time to climb back onto his soapbox. According to The New York Times, Trump had earlier shown lawmakers a draft of a letter purporting to fire Powell.
So, why does Trump want to get rid of Powell? It is no secret that Trump wants lower interest rates, even in the face of sticky inflation. By doing so, the administration can borrow money cheaply to repay existing debts that carry a higher interest rate. It could help to gradually reduce America’s debt burden.
It sounds good in theory. Problem is that the people who are hurt most are American households. They will not be earning an acceptable return on their cash savings because interest rates have been artificially depressed to make the country’s finances appear better than they really are.
It is called financial repression. It transfers money from the pockets of savers into the coffers of the government. The US government can try to dress it up as a benefit for the American people. But it is a con that we might expect from a banana republic – not from the largest developed economy in the world.
If the Trump administration should try to manipulate, coerce or cajole the Fed, BBB won’t be an acronym for Trump’s Big Beautiful Bill but Trump’s Big Bad Banana. He might be able to fool the American people, but he won’t be able to deceive bond investors. He will – like the person who tries to carry a cat by its tail – learn a lesson that he will learn in no other way.
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Disclosure: David Kuo does not own any of the shares mentioned.
