A dissection of the Federal Reserve’s current predicament: How Trump’s tariff gambit and Powell’s consensus management have left the Fed staring into the headlights. Tariff chaos, likely collapsing...
1) Enormous USG fiscal deficits will at some point require _higher_ interest rates to hold to inflation (or NGDP) targets.
2) Yet in the short run the uncertainties of on again/partly off again tariffs and the labor force reductions stemming from deportations are supply, shocks that may require _lower_ interest rates. And central banks have difficulties explaining that sometimes they need to create more inflation.
3) But such a policy coming at a time when the President is pressuring for lower interest rates could appear to be acquiescing to such pressure and hence would undermine market confidence in the target itself.
If inflation soars, then people will blame Trump no matter what the Fed does. But if the economy falls into recession, then Trump will blame the Fed for not cutting interest rates, and his scapegoating will have some success. The political risk is asymmetric: the Fed must cut rates, economic theory be damned; this is for institutional survival.
1) " whatever deportations Trump’s goons accomplish that are more than just isolated media events"
I assume based on their history that ICE will be ineffective at actual deportations, but will succeed in scaring away "lots" (that's a technical term) of actual workers. How would you gauge the effect?
2) "He “judged” and “decided”—if those words still apply, or indeed ever applied, to his cognitive processes—that Jerome Powell was the best person in the world for the Fed Chair Job."
IIRC The decision was based on Yellen being a woman and too short. And Uppity. And Lael Brainard is too tall for a woman and also Uppity.
It's not obvious to me that Trump's destruciton of US productive capacity will result in the kind of macro shock for which interest rates are an appropriate response. Permanent damage to the economy can't be fixed or even offset by monetary policy/
As regards tariff-induced prive increaes, the usual "core inflation" notion implies that the Fed shouldn't respond either way .
That leaves the fiscal defici, which presumably implies higher real and nominal interest rates
The possible fragility of this monkey show is an interesting topic. If Trump did turn against Fox, as unimaginable as that sounds, would that not hurt Fox? Not saying it's likely, but Rupe might have some fear there. His schtick is certainly knowing/phony enough on his part to have some pretty effective shatter points.
Does Rupert want to risk having his naturalization terminated and being deported? But does Trump want to seriously risk losing Fox as a supporter, although it would be fun to hear how the pro-Trump presenters would deal with a 180-degree turnaround in policy?
I think Trump explained things to Murdoch among others quite well with his Musk lesson. Trump didn't shoot down Musk's plane or toss him through an upper story window, but he didn't have to.
The sword can be mightier than the pen. Musk thought that by backing Trump and heading DOGE, he was at some level a co-equal player. He was wrong. If anything, he turned out to be Trump's fall guy. Once out of power, Musk learned that money and economic power is one thing but government power is another. It's a lesson Putin taught oligarch after oligarch in Russia and Xi has taught numerous business leaders in China.
Would anyone but Powell have had the guts to inflate our way out of COVID as Bernanke refused to do out of the financial panic?
https://thomaslhutcheson.substack.com/p/messing-with-the-fed
The Fed's three-way bind:
1) Enormous USG fiscal deficits will at some point require _higher_ interest rates to hold to inflation (or NGDP) targets.
2) Yet in the short run the uncertainties of on again/partly off again tariffs and the labor force reductions stemming from deportations are supply, shocks that may require _lower_ interest rates. And central banks have difficulties explaining that sometimes they need to create more inflation.
3) But such a policy coming at a time when the President is pressuring for lower interest rates could appear to be acquiescing to such pressure and hence would undermine market confidence in the target itself.
If inflation soars, then people will blame Trump no matter what the Fed does. But if the economy falls into recession, then Trump will blame the Fed for not cutting interest rates, and his scapegoating will have some success. The political risk is asymmetric: the Fed must cut rates, economic theory be damned; this is for institutional survival.
1) " whatever deportations Trump’s goons accomplish that are more than just isolated media events"
I assume based on their history that ICE will be ineffective at actual deportations, but will succeed in scaring away "lots" (that's a technical term) of actual workers. How would you gauge the effect?
2) "He “judged” and “decided”—if those words still apply, or indeed ever applied, to his cognitive processes—that Jerome Powell was the best person in the world for the Fed Chair Job."
IIRC The decision was based on Yellen being a woman and too short. And Uppity. And Lael Brainard is too tall for a woman and also Uppity.
It's not obvious to me that Trump's destruciton of US productive capacity will result in the kind of macro shock for which interest rates are an appropriate response. Permanent damage to the economy can't be fixed or even offset by monetary policy/
As regards tariff-induced prive increaes, the usual "core inflation" notion implies that the Fed shouldn't respond either way .
That leaves the fiscal defici, which presumably implies higher real and nominal interest rates
The possible fragility of this monkey show is an interesting topic. If Trump did turn against Fox, as unimaginable as that sounds, would that not hurt Fox? Not saying it's likely, but Rupe might have some fear there. His schtick is certainly knowing/phony enough on his part to have some pretty effective shatter points.
Does Rupert want to risk having his naturalization terminated and being deported? But does Trump want to seriously risk losing Fox as a supporter, although it would be fun to hear how the pro-Trump presenters would deal with a 180-degree turnaround in policy?
I think Trump explained things to Murdoch among others quite well with his Musk lesson. Trump didn't shoot down Musk's plane or toss him through an upper story window, but he didn't have to.
I wasn't aware there was a Musk lesson. What is it?
The sword can be mightier than the pen. Musk thought that by backing Trump and heading DOGE, he was at some level a co-equal player. He was wrong. If anything, he turned out to be Trump's fall guy. Once out of power, Musk learned that money and economic power is one thing but government power is another. It's a lesson Putin taught oligarch after oligarch in Russia and Xi has taught numerous business leaders in China.