President Trump can trade-war his way to interest-rate cuts, even though that’s stupid. jbarro writes
Donald Trump. Photo: Win McNamee/Getty Images On Wednesday, the Federal Reserve announced a quarter-point cut in short-term interest rates. This was a smaller cut than the president wanted, and he also wasn’t pleased with signals that it wouldn’t be followed up by a lot of further cuts.
So on Thursday, President Trump produced additional global trade tensions. He announced that he would impose tariffs on a further $300 billion in Chinese goods. Stocks, oil prices, and interest rates all fell after the announcement, market moves that reflect investors’ expectations that the tariffs will hurt global economic growth and also lead the Fed to be more inclined to cut interest rates.
The president has illustrated a point I made in June: His primary avenue for controlling Federal Reserve policy is not through appointments and not through badgering . The main way the president can get the Fed to change course on interest rates is by doing things that hurt the economy. The Fed’s job is to pursue a dual mandate of stable prices and full employment. When the president does things that hurt the economy, that worsens the outlook for employment and also gives the Fed more room to cut interest rates while maintaining price stability. So, if the president hurts the economy, he can get the Fed to lower rates.
Of course, this is a Pyrrhic victory, since the reason the president wants the Fed to cut rates is that he hopes it will boost short-run economic performance by doing so. Instead, all he gets is a Fed that does its best to offset what he does to dampen economic performance.
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