Power & Market

It Turns Out That Trump Loves Low Interest Rates and Fed Stimulus After All

Back in 2016, Donald Trump criticized the Federal Reserve for keeping interest rates too low. Trump explained that the Fed's work to keep interest rates artificially low benefits the wealthy at the expense of the poor:

And you know the people who are hurt the most are people that saved all their lives, and thought they were going to live off the interest. Those people are getting absolutely creamed.

As a wealthy investor, though, Trump says he "loves low interest rates."

But those who cut down on debt and save their money are hurt by Fed policies:

The ones who did it right — they saved their money [and] they cut down on their mortgages, ... and now they're practically getting zero interest on the money," Trump said. "Those people have really been -- you could almost say discriminated against.

Trump also accused the Fed of creating a "false economy" that made Obama look good, but was really nothing more than a system propped up by Fed stimulus and quantitative easing.

At the time, many Trump supporters used this apparent awareness about the damage done by Fed policies as an indication that Trump would be hostile toward dovish Fed policies once in office.

This hope, however, has proven to be utterly unfounded. Trump apparently doesn't understand or doesn't believe his earlier (correct) critique of Fed policy.

He's done an about-face and If anything, Trump, now that he's in office, has been relentlessly enthusiastic about continued Fed stimulus.

He has repeatedly criticized the Fed to raising interest rates, saying in November:

So far, I’m not even a little bit happy with my selection of [Fed Chairman] Jay [Powell]. Not even a little bit. And I’m not blaming anybody, but I’m just telling you I think that the Fed is way off-base with what they’re doing.

Trump main beef with Powell and the Fed has been the bank's turn toward (very mild) hawkishness under Powell.

In other words, Powell has been doing what Janet Yellen should have done years ago, but lacked the guts to do.

The rate hikes under Powell are far too small, of course, and the Fed's balance sheet continues to be enormous. Powell knows that dumping the Fed's assets, which would have few buyers in the open market, deflation would likely set in.

(According to the dominant ideology in DC, this would be a terrible thing.)

But at least Powell appears to realize that unless the Fed can get the target rate back up to a level sufficiently above zero to allow for maneuvering in case of recession, the Fed will be boxed in.

Trump, who has never demonstrated any actual grasp of monetary policy — or economics in general — just wants to keep the current boom going. And whether he knows it or not, the "false economy" Trump pointed to under Obama is now Trump's false economy.Trump doesn't want that to go away so he now publicly calls for lower interest rates.

Given this, it's now a pretty safe bet that if recession does come during Trump's presidency, he'll be calling for ever-higher levels of stimulus and QE infinity. If he's pushing so hard now for low rates, just imagine what he'll do when the going gets even tougher.

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