• Nick Sorrentino

Trump has discussed firing Federal Reserve chairman Powell

There is no doubt that rising rates have put the breaks, at least to some degree, on the markets and the broader economy. (Some.) However the question (for us, not Trump really) is whether the current Fed Funds Rate reflects where the rate should actually be. If we had market based interest rates operating at a fundamental level we'd know. But because we have central planners making the call instead of the market we don't really know.

Trump's mad because he wants rates low. He wants to juice the economy in the short term. (We've been juicing the economy for a long time.) But remember that Trump is a real estate guy and those guys always want low rates. What happens eventually however when rates are too low for too long is we have malinvestment. That is, the easy money goes to projects it shouldn't, shopping centers, office buildings, the stock market, and so on, and then these ventures collapse on themselves as the projects don't reflect actual organic demand in the economy. Then we have a recession. That's the way the business cycle works.

What we see here is a wrestling match (a bit of one any way) for the economic levers. Trump doesn't like that Fed policy is out of his control, and he knows that the Fed can put the brakes on the economy . Chairman Powell has been raising rates after a decade extremely loose monetary policy (to put it mildly) and seems to have achieved the slowing he likely thinks is prudent. Now the talk goes back to whether the Fed hikes or cuts from here. We are hearing whispers of a cut which is interesting.

(From Reuters)
U.S. President Donald Trump has discussed firing Federal Reserve Chairman Jerome Powell, Bloomberg reported on Saturday, citing sources.
Trump’s frustration with the U.S. central bank chief intensified after this week’s interest rate increase and months of stock-market losses, the news agency said, citing four unidentified people familiar with the matter.
The president has talked privately about firing Powell many times in the past few days, it said, citing two of the people.

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