The Fed got bullied by Trump
Federal Reserve Chairman Jerome Powell’s suddenly dovish turn is a “rookie mistake,” said Rex Nutting. “Recall that, three weeks ago, Fed officials concluded at their June meeting that no rate cuts were necessary,” and the economic outlook has only brightened since then. We’re fresh off a robust month for hiring, capital and consumer spending, and a rebound in trade flows. So, naturally, the Fed is planning to cut interest rates later in July, “as insurance against the possibility—however remote—that the economy might soon collapse because of slowing global growth.” The real reason for the change? Powell has been bullied by President Trump, who keeps barraging him with tweets, and the financial markets into injecting more liquidity. This repeats the mistakes that fed the disastrous Nasdaq bubble two decades ago. If trade wars are the primary cause of uncertainty, “the only solution is to resolve that uncertainty.” That’s Trump’s job. It’s not Powell’s responsibility to “paper over it with cheap money.” Or, if lack of confidence is the issue, “it does no good to see the Federal Reserve in full panic mode.” So, how exactly does a rate cut help? The Fed should be “taking away the punch bowl so that the party doesn’t get out of hand.” Instead, Powell is letting the stock market inflate and declaring “happy hour” at the saloon.