FacebookTwitterRedditEmail

Trump and the Federal Reserve

Many of us would rather not think about the possibility of President Trump getting reelected, but there is little doubt that he is thinking about it.

If Trump is serious about winning reelection, he may want to reconsider the sort of people he is appointing to the Federal Reserve. Virtually all political experts agree that a central factor in a president’s reelection prospects is the state of the economy in the year he or she is running. But Trump is appointing people who are likely to support rapid increases in interest rates, which very well could slow economic growth.

Unfortunately, most Americans don’t pay much attention to the Fed. People usually perceive its decisions about interest rates and inflation as affecting only Wall Street and big investor types. But the Fed has an enormous impact on the lives of ordinary workers. When it chooses to raise interest rates, as it has been doing for the last 15 months, it is making a conscious decision to slow the economy.

Higher interest rates discourage people from buying new cars and homes. Fewer home owners refinance mortgages. Businesses and state and local governments are less likely to borrow to invest in new factories, equipment and infrastructure. When growth slows, the economy has fewer jobs. The unemployment rate could stop falling and even rise. People with jobs also are worse off because they have less bargaining power in a weaker labor market. Their wages rise less rapidly and may not keep up with inflation.

The Fed and its leadership should matter to all of us, in other words.

Until the beginning of February, the central bank was led by Janet L. Yellen. Over the previous 15 months, Yellen, an Obama appointee, went along with four interest rate hikes, but she was much more cautious about rate increases than many other economists.

Just a few years ago, it was widely believed by economists that the unemployment rate could not get below 5% without triggering an inflationary spiral. The Congressional Budget Office even projected that unemployment could not fall below 5.4% without sparking inflation.

Yellen persuaded her colleagues to ignore such projections, and to allow the unemployment rate to continue to fall. Her strategy of delaying interest rate hikes, and then raising rates only gradually, enabled millions of workers to get jobs and tens of millions of workers to see wage gains. For the first time since the late 1990s, workers at the middle and bottom of the pay ladder are seeing wage gains that exceed inflation.

Trump decided against offering Yellen a second term and replaced her with Jerome Powell, a Republican who sat on the Fed’s board. Though Powell voted with Yellen in the past, he has picked two advisors from the raise-rates-faster crowd, Jon Faust and Antulio Bomfim.

Trump’s other picks also are likely to support more rapid rate hikes. Randal Quarles, who was approved as the Fed’s vice chairman for supervision in October, has repeatedly warned that low interest rates increase the risk of dangerous asset bubbles. Rather than looking to regulatory solutions to deal with the threat of bubbles, Quarles urges higher interest rates. Marvin Goodfriend, nominated by Trump to be a governor at the Fed but not yet approved by the Senate, has been advocating for higher interest rates since 2011.

The only current governor who can be counted on to show restraint when it comes to interest rate hikes and back full employment is Lael Brainard, the sole holdover from the Obama years. Some of the Fed’s 12 district bank presidents, most notably Neel Kashkari at the Minneapolis Fed and Charles Evans at the Chicago Fed, also have supported full employment. But this trio is not likely to prevail if the rest of the Fed wants to raise interest rates.

The U.S. economy has been expanding for nine years. If this growth continues into 2020, we will be in the eleventh year of a recovery, or the longest in American history. There is no reason the economy should not go that long without a recession — Australia hasn’t had one in more than a quarter-century — but it will require good management at the Fed and leaders who are committed to maintaining full employment.

If the Senate approves Goodfriend, there will be three more slots to fill on the Fed’s board of governors. Trump should avoid the usual Republican suspects and pick economists who are inclined to vote against rate increases. He can do this in the name of improving his reelection prospects. The rest of us will be happy to see workers get jobs and decent wages.

This column originally appeared in the Los Angeles Times.

More articles by:

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

bernie-the-sandernistas-cover-344x550

April 23, 2019
Peter Belmont
The Monroe Doctrine is Back, and as the Latest US Attack on Cuba Shows, Its Purpose is to Serve the Neoliberal Order
David Schultz
The Mueller Report: Trump Too Inept to Obstruct Justice
Geoff Beckman
Crazy Uncle Joe and the Can’t We All Just Get Along Democrats
Medea Benjamin
Activists Protect DC Venezuelan Embassy from US-supported Coup
Patrick Cockburn
What Revolutionaries in the Middle East Have Learned Since the Arab Spring
Jim Goodman
Don’t Fall for the Hype of Free Trade Agreements
Lance Olsen
Climate and Forests: Land Managers Must Adapt, and Conservationists, Too
William Minter
The Coming Ebola Epidemic
Tony McKenna
Stephen King’s IT: a 2019 Retrospective
David Swanson
Pentagon Claims 1,100 High Schools Bar Recruiters; Peace Activists Offer $1,000 Award If Any Such School Can Be Found
Gary Olson
A Few Comments on the recent PBS Series: Reconstruction: America After the Civil War
April 22, 2019
Melvin Goodman
The NYTs Tries to Rehabilitate Bloody Gina Haspel
Robert Fisk
After ISIS, a Divided Iraq, Wounded and Grief-Stricken
Binoy Kampmark
Julian Assange as Neuroses
John Laforge
Chernobyl’s Deadly Effects Estimates Vary
Kenneth Surin
Mueller Time? Not for Now
Cesar Chelala
Yemen: The Triumph of Barbarism
Kerron Ó Luain
What the “White Irish Slaves” Meme Tells Us About Identity Politics
Andy Piascik
Grocery Store Workers Take on Billion Dollar Multinational
Seiji Yamada – Gregory G. Maskarinec
Health as a Human Right: No Migrants Need Apply
Howard Lisnoff
Loose Bullets and Loose Cannons
Ricardo Alarcón de Quesada
Dreaming in Miami
Graham Peebles
Consuming Stuff: The Polluting World of Fashion
Robert Dodge
Earth Day: Our Planet in Peril
Weekend Edition
April 19, 2019
Friday - Sunday
Andrew Levine
What Will It Take For Trump to Get His Due?
Roy Eidelson
Is the American Psychological Association Addicted to Militarism and War?
Jeffrey St. Clair
Roaming Charges: Time is Blind, Man is Stupid
Joshua Frank
Top 20 Mueller Report “Findings”
Rob Urie
Why Russiagate Will Never Go Away
Paul Street
Stephen Moore Gets Something Right: It’s Capitalism vs. Democracy
Russell Mokhiber
Why Boeing and Its Executives Should be Prosecuted for Manslaughter
T.J. Coles
The Battle for Latin America: How the U.S. Helped Destroy the “Pink Tide”
Ron Jacobs
Ho Chi Minh City: Nguyen Thai Binh Street
Dean Baker
Fun Fictions in Economics
David Rosen
Trump’s One-Dimensional Gender Identity
Kenn Orphan
Notre Dame: We Have Always Belonged to Her
Robert Hunziker
The Blue Ocean Event and Collapsing Ecosystems
Theodore C. Van Alst, Jr.
Paddy Wagon
Brett Wilkins
Jimmy Carter: US ‘Most Warlike Nation in History of the World’
John W. Whitehead
From Jesus Christ to Julian Assange: When Dissidents Become Enemies of the State
Nick Pemberton
To Never Forget or Never Remember
Stephen Cooper
My Unforgettable College Stabbings
Louis Proyect
A Leftist Rejoinder to the “Capitalist Miracle”
Louisa Willcox
Aldo Leopold’s Land Ethic and the Need for a New Approach to Managing Wildlife
Brian Cloughley
Britain Shakes a Futile Fist and Germany Behaves Sensibly
FacebookTwitterRedditEmail