In principle, my position is clear: in normal times the Fed’s rates would be too high for the US economy, and a cut would not only be desirable, but even essential, for the US, for the world economy and most especially for all those states whose liabilitis are denominated in dollars, all of whom are desperate for rates to fall.
These are not, however, normal times. They are anything but that. Trump is threatening mayhem, and in the face of that, the Fed is taking time to do anything, and that is what a central banker always does in this situation. That might be forgivable for two reasons:
The Fed needs to see what is happening, and they think time will provide that perspective.
They are fighting a political battle with Trump when few others are, and they are determined to continue to do so.
I think that, in these exceptional circumstances, their actions might be justified. However strong my desire for cuts, which could lead to similar outcomes in the UK, the US Fed might just be right to be on hold right now.
Not sure whether it’s good because it’s anti-Trump of because it’s Thursday.
“They are fighting a political battle with Trump when few others are”
1. Everyone is fighting a political battle with Trump. Trump is winning.
2. WTF is a notionally independent, technocratic, dispassionate and apolitical Central Bank doing fighting a political battle?
3. The “Let’s see what economic damage the tariffs do first” argument is long past its sell-by date. Trotting it out now is both risible and mendacious. They’re doing little damage, if any, because their purpose is not economic. They’re Trump’s big stick to whack everyone into line, and they work. Exhibit A and B: TTK and VdL’s arses on silver platters, with the added bonus of sowing even more discord between the EU and UK.
Test comment
1. Rates are NOT high.
2. I doubt anyone ever thought the Fed would operate without regard to politics. The Fed-head is always going to have an economic philosophy. The point was to operate independently of the two parties. They appear to be doing that, since both political parties get pissed at Powell by turn.
3. Rates are NOT high.
If you were paying the interest the Federal government does, you would agree rates are high. Just half a percent would save Trump hundreds of millions. And a little fiscal loosening wouldn’t hurt the economy. If it all runs away hot you can raise rates back.