Opinion

Donald Trump is shockingly sane on the Federal Reserve

Especially when compared to his Republican rivals...

It's almost decision day at the Federal Reserve. On Wednesday, the Fed officials who vote on monetary policy will conclude one of their semi-regular meetings, and announce where they want to set interest rates for the next month and a half.

When it comes to what the Fed should do, we're hearing something like sense from the most unlikely of sources: Donald Trump.

What's important here is that Trump is running for the Republican nomination for the presidency. To say the GOP has lost its mind when it comes to the Federal Reserve would be putting things rather mildly. House Speaker Paul Ryan has made a side career out of hapless predictions that low interest rates and quantitative easing would deliver hyperinflation. Ted Cruz has called for a return to the gold standard. John Kasich claimed in January that low interest rates are one of the reasons wages are stagnating.

In short, the field is just saturated with nonsense.

If you read the interview Trump gave to Fortune last week, you can tell he feels the weight of this ideological junk. He suggested he'd replace Fed Chair Janet Yellen, while admitting she's doing a "serviceable job." And he brought up the usual Republican talking points about how low interest rates hurt savers and the need to audit the Fed.

But you get the sense Trump's heart isn't really in it. For one thing, he has experience as an actual businessman, which means he knows one of those basic economic realities that politics tends to obscure: Namely, that low interest rates make economic activity easier. They mean higher rates of job growth and higher rates of wage growth. "I always like low interest rates, certainly as a developer," Trump said.

This is one of those things you can't repeat enough. The express purpose of hiking interest rates is to slow down rates of job creation and wage growth — to keep inflation from rising and "overheating" the economy. But here's how inflation has behaved since 1960 — as measured by the common-used CPI (in red), which tends to be erratic, and the Fed's preferred measure of core PCE (in blue) which tends to be smoother.

By either measure, does it look to you like we have an inflation problem to fight? Yeah, me neither.

In fact, financial markets expect the inflation rate to be around 1.6 percent in five years. And that's high compared to the five-year rate they've expected over the last 10 months.

In the Fortune interview, Trump goes through the motions of pointing out that low interest rates make life more difficult for people who have saved and now rely on their investment portfolios for income. Of course, such people tend to be older, so it's worth noting the considerable age gap between the parties: The GOP's obsession with keeping interest rates high speaks to a voter base that benefits from high interest rates. You can almost see Trump wiggling uncomfortably under the unspoken logic that we should wreck the livelihoods of workers in order improve the livelihoods of the retired.

Finally, as a businessman, Trump probably also can't help but acknowledge that low interest rates are a market signal: They mean borrowing is cheap, so now is the time to borrow and invest. That's as true for the country as it is for individual companies. "The best thing we have going now is that interest rates are so low that lots of good things can be done that aren't being done, amazingly," Trump said.

Again, being a Republican, Trump emphasized spending more to build up the military. That's ridiculous: American military spending is already larger than the next 10 biggest countries combined. But Trump also mentioned infrastructure, and that's where he has a good point. The United States' infrastructure may not be terrible, but it needs some serious improvements. And with an unemployment rate still hovering around 5 percent, and historically depressed labor force participation, there are plenty of Americans who could be put to work.

Meanwhile Ted Cruz irresponsibly suggests the Fed is "hiding" the "true" cost of the nation's debt. And when Kasich says low interest rates are contributing to low wages, he's literally describing the opposite of how it works.

Shockingly enough, when it comes to the Federal Reserve, Donald J. Trump is the only one of the bunch who even sounds halfway sane.

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