This week, Federal Reserve Chair Jerome Powell and the Federal Open Market Committee (FOMC) held federal fund rates within the target range of 4.25% and 4.50%. Balancing uncertainty between higher inflation and higher risk of unemployment “How will this shake up?” Powell said basis For decision.
This made President Donald Trump awkward. He hopes Powell will cut interest rates. He wants lower borrowing costs to ease the fallout from his trade tariff policy. Prior to the FOMC meeting, Trump even called Powell by his average name. The true society:
“Unless it’s too late, there could be a slowdown in the economy. [Powell]the major losers will now cut interest rates. ”
Lower interest rates will help Treasury Secretary Scott Bescent cover $1.07 trillion Government debts that must be borrowed from April to September. Also, lower interest rates will encourage weaker dollars, making American-made goods more competitive in the export market. This coincides with Trump’s aim to bolster American production.
But what options did Powell really have?
If he cut short-term interest rates after Trump’s frequent, public bams of his performance, demands for interest rate cuts, he would have looked like Trump’s Tody. Perhaps the decision to retain was made with the aim of asserting independence from the Fed’s political influence.
who knows?
Anyway, Trump didn’t cut his rate. However, he has got the perfect scapegoat that he can use to distract responsibility from his tariff policy when the economy ceases in the coming months.
The conflict between Trump and Powell is not the first time the US president and the Fed chair have locked up the corner.
Impact and threats
The conflict between President Lyndon B. Johnson and Federal Reserve Chairman William McShesney Martin Jr. in the mid-1960s was a classic case of political and monetary policy inconsistencies.
If you recall, Johnson’s great society and the Vietnam War programme of guns and butter increased government spending. In time, all of this excess expenditure was bubbly in rising consumer prices.
Fed Chairman Martin is concerned about the possibility of runaway inflation and concluded monetary policy by raising interest rates. However, Johnson wanted to boost the economy by boosting lower interest rates and funding his welfare and war programmes.
Johnson, a total control freak, did not like Martin’s suppression. So he invited Martin to a ranch in Texas to settle their differences.
There he threatened Martin and physically pushed him around the room, demanding interest rate cuts. “Martin, my boy is dying in Vietnam. You don’t print the money I need.” I got a bar Johnson.
Martin initially resisted Johnson’s pressure. But in the end he succumbed.
A few years later, another conflict between the president and the Fed Chairman fell over when Johnson’s inflation was filtered through the economy. This time it’s between President Richard Nixon and Federal Reserve Chairman Arthur Burns.
Nixon’s main goal in 1972 was to be re-elected. He wanted to boost the economy by lower interest rates in the face of rising consumer prices. Burns was a personal friend of Nixon, but worried about the long-term outcome of inflation.
Nixon repeatedly yelled at Burns, accusing him of demanding low interest rates. Burns folds like a card table and stays silent before the election.
However, after Nixon was re-elected, Burns moved to tighten his monetary policy. But it was too late. The inflation cat had already left its bag and ran in the wild until the end of the decade.
Ignorance illness
A similar showdown is currently being played between Trump and Powell. It’s fun to watch. But do either of these guys really know what they’re doing?
“To make your own ignorance ignorance ignorance is a disease of ignorance.” Sometime in the 19th century, Amos Bronson Alcott said:
Alcott made this statement long before the Federal Reserve existed. Nevertheless, he would have concluded that the purpose of the Federal Reserve, to set interest rates in the edict order, is for those suffering from the illness of ignorance.
Trump definitely doesn’t know what interest rates should be. We don’t do that either. Likewise, I don’t know Powell and the military of Federal Reserve engineers.
But it is Powell’s job to know exactly what interest rates should be. Additionally, he must direct the interest rate that the lender should charge the borrower. He believes that setting the “correct” interest rate can help optimize the economy.
Specifically, by avoiding money supply and achievement, the Fed praises its attempt to ease the business cycle. The big idea behind it is that the economy is something that can be managed scientifically. This premise is wrong.
The trend of bureaucrats who believe that the economy can be improved through central planning is what Friedrich Hayek called deadly conceit. According to Hayek, economic decisions require a price signal in the form of a price charged to a good or goods.
These price signals allow producers to increase or decrease supply, or reduce consumers to increase or decrease demand. Economic distortions emerge when these price signals are hampered through government intervention.
Without a price signal, central planners are simply guessing.
I’m suffering from the Fed’s mistake
Central planners, including central banks, never acknowledge the futileness of their way. Again and again, they try to manage anything beyond their control. They can’t get things right. But they are always able to confuse things.
For example, Soviet planners armed with a five-year plan could not decide what the right price for toothpaste or toilet seat, or what wage workers should pay to produce them. The shelves in the store were chronically empty.
Similarly, government decrees cannot order the price or rent of Peruvian bananas in New York City apartments. Alternatively, if the decisions are left to the producers and consumers, supply is provided and the crunch of demand is quickly equilibrated at market-determined prices.
So, why does the Federal Reserve believe that if Soviet central planners fail to grasp the prices of toothpaste and toilet seats, then?
Of course, credit prices are the most fundamental element of the economy. Putting a “price-fixed” credit in the hands of a committee of unelected bureaucrats brings disaster.
It is also important to understand that the Fed will serve the interests of privately owned commercial banks through its 12 regional Federal Reserve Banks. Efforts to strengthen the economy for the benefit of Americans are secondary.
The proof is in the pudding. The Fed’s track record for decades shows that it cannot get its interest rate policy correctly. In fact, over the past 30 years, Fed policies have adjusted three major booms and bust cycles.
Rather than allowing individual lenders and borrowers led by the latest market price signals, the Fed intervene from the ivory tower to freely reach terms on the interest rate paid per transaction.
Here, along with the rest of us, we are suffering from that mistake.
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From the heart,
Mn Gordon
For economic prism
After suffering the Fed’s mistakes, it returns to the economic prism.
