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A Trade War Puts Pressure on the Federal Reserve​

Lowering interest rates to soften the negative shock risks embedding higher inflation into the economy.​



“… Mr. Trump’s aggressive tariff policies pose another serious risk: The weaker economic activity, higher unemployment and likely increased prices that will result run counter to the Federal Reserve’s dual mandate of 2% inflation and maximum employment. This will strain the Fed’s monetary policy, pressuring it to make short-run decisions that may compound the longer-run costs of the tariffs.

… But lowering interest rates to mitigate the short-run economic effects of Mr. Trump’s tariffs could boost inflationary expectations and embed higher inflation in the economy. It could also embolden the Trump team to impose more tariffs, further harming economic performance. This would produce stagflation. Monetary ease is incapable of offsetting the economic inefficiencies and distortions created by the tariffs.

… Chairman Jerome Powell has properly emphasized that the Fed will remain independent while determining monetary policy. Congress—in particular, the Senate Banking Committee and House Financial Services Committee—must support the Fed at this critical juncture. All Americans benefit from an independent central bank that pursues stable, low inflation as the foundation of healthy economic growth. The Fed must now be guided by the lessons of history.”
 
nycfan said:
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HANK TOUGH, WE CAN’T LOSE!!!

Cracking Up Lol GIF by Rodney Dangerfield
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Just want to be sure I'm following Trump's logic this morning.

1. He did the tariffs to tank the markets so the rich lose money and it ends up with the middle class.

2. But as a result of the tariffs, foreign companies can move their manufacturing operations and get filthy rich by . . . um . . . exploiting the middle class?

No wonder our board Trumpers have disappeared. There's literally no way to spin this that doesn't make you look like an absolute idiot.
 
Powell is right. They should take their time. This is really unprecedented in economic history, so there's no playbook. The Fed's economic analyses and internal modeling very likely does not include this scenario. It 100% does not include a scenario where the tariffs are calculated arbitrarily.

For the Fed to do its job correctly, it needs to study the issue, internally deliberate, solicit various opinions from economists, and think it through.

It is not the Fed's job to use monetary policy to rescue the country from idiotic fiscal policy or trade policy. And in fact, it can't really do that anyway.
 
nycfan said:
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1. They will adjust? I mean, we adjusted to the loss of Hans, Ty, Wayne, and Danny. We just didn't end up in a good place after the adjustments. And so too. The markets will adjust, but they might adjust to a considerably lower level.

2. This press conference to me drives home something I was thinking about last night: does Trump really have the patience to see this through? Trump can't keep his eyes on the prize for like a week. What makes us think that Trump will sit back and pile up political losses upon losses, without any victories, all in the name of some abstract economic policy that might do something good over the long-run. Trump hasn't thought about the long-run for his whole life.

I'm pretty sure that Trump's expectation -- this reminds of one of Homer's various ultra-competence fantasies -- was that other countries were just going to roll over in the face of American might, thus giving Trump the quick and easy victories he seeks.

When he's sending Rubio out to talk to the press about how great the tariffs are THE DAY AFTER, it tells me that they have no fortitude for a long fight. They very well might cave before the end of the month.
 
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