The Fed caved in to market and Trump demands because it lacks support for its policies


President Donald Trump is in much better position in his fight with the Fed than President Truman was. Inflation is running at 2.1 percent. The economy is expanding but not at historically high rates. In fact, growth is relatively slow by historical standards. Plus, virtually all of the current members of the Federal Reserve Board are there due to President Trump’s recommendation (Lael Brainard is the one exception).

Further, one might argue that the Fed’s articulation of why it moved to a more stringent monetary policy is unusually weak. It wanted to bring rates back to a position of equilibrium and it wanted to prevent inflation from returning. Therefore, while Eccles had the support of his co-members on the Fed Board, the Congress, and the public, Chairman Jerome Powell may have none of the above.

No one knows what the equilibrium rate is and, if one listens to Chairman Powell’s speech to the NY Economic Club, apparently the Fed can move this hypothetical equilibrium rate around at whim. Moreover, the desire to fight inflation apparently means the need to stop wages from rising – not a popular idea.

Further, if one reads or listens to the speeches of Fed Board members there is no cohesive economic of financial theory that is being articulated. Everyone is data dependent – i.e., clueless.

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