- Trump wants the Fed to start cutting interest rates…
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Dear Reader,
“Do the right thing,” the president counsels the Federal Reserve.
What conduct precisely constitutes the “right thing?”
The answer is reductions to the interest rate. Continues the president:
- The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy… April 2nd is Liberation Day in America!!!
April 2nd — or Liberation Day as the president styles it — represents the date upon which his reciprocal tariffs regime enters effect.
Should Mr. Powell and mates of the Federal Reserve take aboard the president’s counsel?
And should the president truly embrace rate reductions?
Not necessarily, argues Freedom Financial News contributor Jim Rickards.
Be Careful What You Wish for
The president should exercise caution of his considerations:
- Trump says he wants lower rates, but… stocks and bond yields may both go down on their own for reasons having very little to do with Trump or the Fed and everything to do with slower growth and possible recession in the U.S….
- Rates going down is a case of “be careful what you wish for.” Most people think of lower rates as “stimulus.” They’re not. Lower rates are associated with depression and recession. In a strong economy, rates actually go up a bit because higher returns are available, and entrepreneurs compete for funds.
Mr. Rickards has his binoculars trained on the United States economy. Through them he observes straws swaying menacingly in the stiffening breeze.
Thus recessionary omens are “everywhere,” he warns:
- Right now, the signs of recession in the U.S. are everywhere. The Federal Reserve Bank of Atlanta GDPNow tracker has collapsed. Its Q1 forecast for GDP growth was +2.3% (annualized) on February 26. By March 7, it showed -2.4%. As of March 18, it improved slightly to -1.8%. But that’s a shocking decline in growth in such a short amount of time…
- Retail sales and consumer confidence are also down. Labor force participation, a measure of the number of people in the economy actually working (whether technically “unemployed” or not) is also declining. New hiring hit a wall months ago and now layoffs are beginning. Major retailers such as Walmart, Target and Best Buy have all warned that their revenues and profits are slowing.
The Fed’s Hooked on the Horns of a Dilemma
This week the Federal Reserve elected to sit upon its hands, idly.
It did not depress rates — to the president’s apparent disappointment.
Yet nor did it elevate rates.
Mr. Rickards believes the Federal Reserve dangles from the hooks of a lovely dilemma.
It cannot depress rates because inflation remains a going concern. They have not gotten it back in its bottle — not adequately at any event.
Yet it must hesitate to elevate rates because of the recession omens cited above:
- The Fed is between a rock and a hard place. Right now, the Fed is more concerned about inflation. By May, they will be more concerned about jobs. They cannot cut rates to fight unemployment and raise rates to fight inflation at the same time. That’s why they’re basically throwing up their hands and doing nothing.
Yet throwing up their hands and doing nothing is precisely the conduct I recommend for the Federal Reserve.
Not merely at present — but forevermore.
Retire the Fed
Is the Federal Reserve not at least partly responsible for the inflation that has besieged us these past three years?
I maintain it is at least partially responsible, yes.
Then why, I ask, should we entrust it to lift inflation’s siege?
Why should the Federal Reserve direct monetary policy at all?
The question is not a rhetorical question. It is a square question — meriting a square answer.
As I have argued before:
The Federal Reserve’s very business is false.
It manipulates interest rates that send false signals to markets.
Thus it twists the signs on the road to true price discovery. The east arrow points west, the west arrow points east.
North points south and south points north.
Or does north point west? Does east point south? No one can say because the Federal Reserve has monkeyed the signage.
It is keen, generally, to block off the southbound lanes … and detour all traffic into one single lane heading north.
Its highway interventions inflates bubble after bubble, of every model and make.
I issue my call for a return to honest signage.
Let the Market Figure It All Out
Thus I propose that the Federal Reserve cease all manipulation of interest rates and influence upon the same.
No more setting, influencing or in any way bullying short-term interest rates, long-term interest rates, intermediate interest rates or any other interest rates.
That is, that the Federal Reserve must cease distorting the price of credit.
Turn the credit business over to borrowers and lenders on the free market… as the prices of automobiles, computers, chewing gum, floor mops and catcher’s mitts are turned over to the free market.
Let the market find its own level — high, low, all platforms in between.
I would restore the Federal Reserve’s original mandate of providing liquidity to otherwise solvent banks in event of crisis.
I would secondly strike from its statute the twin mandates of “price stability” and “full employment.”
Stability
Would there be losers? Yes, there would be losers. But does not the current arrangement yield its losers?
And do not forget that there would also be winners. Among them would be many of today’s losers… whom the present arrangement disfavors.
Most importantly, it would wring the wild excesses from the financial system.
The booms would not thunder nearly as loudly — or for nearly as long.
Yet nor would the busts.
The president would have the Federal Reserve “do the right thing” by depressing interest rates?
I would have the Federal Reserve do the right thing by resigning its post.
Its services are no longer required.
They never were.
Brian Maher
for Freedom Financial News
