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Krugman writes: "In late 2015 then-candidate Donald Trump accused Janet Yellen, chair of the Federal Reserve, of being part of a political conspiracy. Yellen, he insisted, was keeping interest rates unjustifiably low in an attempt to help Hillary Clinton win the presidency."

Economist Paul Krugman. (photo: Forbes)
Economist Paul Krugman. (photo: Forbes)


The Trumpification of the Federal Reserve

By Paul Krugman, The New York Times

22 June 2019

 

n late 2015 then-candidate Donald Trump accused Janet Yellen, chair of the Federal Reserve, of being part of a political conspiracy. Yellen, he insisted, was keeping interest rates unjustifiably low in an attempt to help Hillary Clinton win the presidency.

As it happens, there were very good reasons for the Fed to keep rates low at the time. Some measures of the job market, notably prime-age employment, were still well below precrisis levels, and business investment was going through a significant slump — a sort of mini-recession.

Fast forward to the present. The employment picture is much stronger now than it was then. There are hints of an economic slowdown, partly because of the uncertainty created by Trump’s trade war, but they’re considerably fainter than those of 2015-16. And Trump himself keeps boasting about the economy’s strength.

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-6 # pres 2019-06-23 09:11
The FED should keep interest rates low (actually close to zero) since the 'money' is created from nothing.
 
 
-2 # dbrize 2019-06-23 09:27
Trump is right...but he’s wrong. Wait. He’s right but for the wrong reasons. Raise rates, nope, cut rates. Strong dollar...good. Nope, strong dollar bad.

Meanwhile, the global banks are awash in derivatives once more and central banks are playing hide the pea.

Reminds of the old song:

First you say you do
Then you don’t
First you say you will
Then you won’t
Your undecided now
So what are you gonna do?
 
 
+1 # Robbee 2019-06-23 12:49
The Trumpification of the Federal Reserve
By Paul Krugman, The New York Times
22 June 2019

- in late-2015 ted cruz, then a candidate, lobbied the fed to raise rates, which the fed did, to slow barak's economy!

much less cruz, even a dickhead knows what he's doing! and why!

bush 2's fed super-heated the economy!

today dickhead insists that the fed do the same!

dickhead is running for reelection!

it's only fair to repukes! - the fed is angling to do the same!
 
 
0 # yolo 2019-06-23 14:37
The intent of raising interest rates is to control inflation when the economy is doing well and there is high employment. As Krugman mentions the economy may be doing well now and unemployment is low, but what about inflation? If inflation is low and the forecast for it is to remain that way then why should the fed raise rates? But Krugman doesn't say much about what the current or forecast is for inflation, why is this?
 
 
+1 # RMF 2019-06-25 12:05
As any economist will tell you, monetary policy must target the real rate of interest -- that is, the interest rate minus inflation. Doing so gives us a real Fed Funds rate of about 1 percent (2.5% Fed Funds minus 1.5% PCE Index.)

Also, as any economist knows, inflation is notoriously difficult to forecast. But one of best leading indicators of future inflation is the unemployment rate. When the economy is at full employment output cannot increase adequately to meet growing demand, and price increases occur as a consequence.

Combine full employment with an overly accommodative monetary policy (as Trump lobbies for) and alarm bells should be going off. But not surprisingly Wall St has a myopic "what me worry attitude," which is fairly typical, since investment bankers have a herd instinct for short run speculative gain.

Moreover, the current 1 percent real Fed Funds rate is at the lower range of the long run or steady state real Fed Funds rate of around 1 to 2 percent. Combine this with tariffs and trade barriers, which are also inflationary, and there is reason to worry.

Add all this up, and no case can be made for the reduction of interest rates. Economic fundamentals dictate that rates should stay unchanged or increase somewhat to a real level of about 1-1/2 percent (a nominal Fed Funds rate of about 3 percent.)

There is another reason to hold rates stable -- the Fed needs room on downside to reduce the real rate when next recession occurs.
 

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