The Politics of the Money Supply

President Trump Announces the Chair of the Board of Governors of the Federal Reserve System Nominee

The Story:

The US Federal Reserve has received a lot of criticism in recent months for what many see as an overly rigid stance toward the money supply and interest rates. Some of that criticism comes from President Trump, who has said that the US economy would “go up like a rocket” if only the Fed would ease up on rates.

Background:

The Federal Reserve in effect determines the supply of US dollars in circulation, and it has a lot to do with (though its decisions aren’t the only factor in) interest rates, which are the prices of borrowing dollars, whether the borrowers are banks, industrial firms, or consumers.

In simple terms, when the economy seems to be prone to inflation, it is the duty of the Fed to throttle back on money supply growth and encourage higher interest rates. On the other hand, when inflation is not a risk, and the economy needs productive stimulus, the Fed can supply that stimulus by “quantitative easing” and lower rates.

The Thing to Know:

The Fed’s target rate is 2% inflation. Inflation has for some time now been below that target. So the President may have a point: why, indeed, should rates not be lowered? Defenders of Fed policy, on the other hand, are generally old enough to remember the 1970s, a time of roaring inflation that did not succeed as stimulus, and they are wary of a repeat performance.

Lawrence Remembers Alice Rivlin | The Last Word | MSNBC

Lawrence Remembers Alice Rivlin | The Last Word | MSNBC

Congress didn’t know what it was doing until Alice Rivlin told them.
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Lawrence Remembers Alice Rivlin | The Last Word | MSNBC

Trump Federal Reserve pick: Critics are ‘pulling a Kavanaugh’ on me

Trump Federal Reserve pick: Critics are 'pulling a Kavanaugh' on me

Economist Stephen Moore, who President Donald Trump nominated for a spot on the Federal Reserve Board, says his critics are “pulling a Kavanaugh” on him following major backlash over his past sexist comments. CNN’s Andrew Kaczynski has the latest. #CNN #News

Potential Fed nominee: I’m worried about deflation of the economy

Potential Fed nominee: I'm worried about deflation of the economy

Economist Stephen Moore on the U.S. economy and his potential Federal Reserve nomination.

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Is Trump’s economy slowing down heading into 2020?

Is Trump's economy slowing down heading into 2020?

The president is hoping to make his economic record a cornerstone of his re-election campaign, but is a bond market recession coming? White House economic adviser Larry Kudlow reacts on ‘Journal Editorial Report.’

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Fed’s Powell says Trump’s political attacks didn’t stop rate hikes

(CNN)Federal Reserve Chairman Jerome Powell said repeated political attacks by President Donald Trump had zero influence on the central bank’s decision to slow down interest rate hikes.

“Not at all. Not at all,” said Powell in an interview with the CBS news program “60 Minutes” on Sunday. “And it’s very important that the public understand that we are always going to make a decision based on what we think is right for the American people.”

Powell explained that the Fed’s decision in January to pause raising rates was because the global economy was showing signs of slowing and other risks to the US economy were rising.

The Fed chairman has repeatedly made the case for a patient, measured approach, describing the US economy in a “good place,” where policy makers “don’t feel any hurry to change our interest rate policy.”

So far this year, central bankers have kept the federal funds rate, which influences the cost of mortgages, credit cards and other borrowing, at a range of 2.25% to 2.5%.

“What we’ve done is we’ve said that we’re going to wait and see how those conditions evolve before we make any changes to our…

India should keep election politics out of energy policy

The best solutions need long-term continuity with cross-party consensus

New Delhi’s message to oil producers: Do not kill the goose that lays the golden egg. © Reuters

The 30% slide in international crude oil prices from four-year highs notched in early October could well benefit the chances of Prime Minister Narendra Modi’s ruling Bharatiya Janata Party in India’s general elections, to be held in the spring.

In one of the world’s largest economies, with a burgeoning urban middle class, pump prices can quickly become a hot-button issue, especially if they hit historic highs, as happened early last year.

The burden of transportation cost inflation on the man on the city street is played to the hilt by the media and is easily politicized, with the ruling and opposition parties trading barbs. The effect is amplified in an election year.

The Modi government probably faced more heat than usual over last year’s spike in petrol and diesel prices because it had eliminated diesel subsidies shortly after coming to power in 2014 and proceeded to raise taxes on transportation fuels several times over 2014-2016. That resulted in pump prices hitting all-time highs in rupee terms in Indian cities of 91.20 rupees ($1.22) per liter for petrol and 80.10 rupees per liter for diesel though international crude prices had only touched a four-year peak.

The central government finally caved in to public and political pressure in early October, whittling down the excise tax on petrol and diesel by 1.50 rupees (2 cents) per liter from 19.48 rupees and 15.33 rupees per liter respectively. The country’s public-sector refiners were asked to cut prices by another 1 rupee per liter, out of their pockets. It was a tough decision for the government and forcing the refiners to share some of the burden was far from ideal. But at least the government did not resort to bringing back state subsidies, which would have been a more regressive step.

The BJP may indeed have the tailwind of lower oil prices in 2019 compared with 2018 as it seeks the voters’ mandate for a second term in the central government. But hoping for international crude prices to remain low is not a strategy.

Brent could bounce back from the current levels of $50 per barrel. OPEC producers and their non-OPEC allies have begun to restrain production by a collective 1.2 million barrels per day starting from Jan. 1, with the aim of tightening supply and pushing crude prices higher.

A breakthrough in the U.S.-China trade…

Trump’s message on Christmas Day: ‘It’s a disgrace’

Trump sets completion date for border wall

(CNN)In President Donald Trump’s Christmas Day telling, the drugs are flowing over the border, the Federal Reserve is imperiling the economy and the Democrats are preparing to harass him with oversight requests.

“It’s a disgrace, what’s happening in our country,” Trump fumed, seated behind the Resolute Desk on Tuesday, after decrying Democrats as hypocrites and recalling — unprompted — his firing of former FBI Director James Comey.

“But other than that,” he said, his hands gesturing outward, “I wish everybody a very merry Christmas.”

If most Americans were taking a break from their workplace woes on Christmas morning, the President was wallowing in them, even as he worked to project a festive demeanor amid a partial government shutdown and troubling economic news.

Celebrating the holiday at the White House instead of his Palm Beach estate, Trump used a phone call session with American troops to advance his case for a border wall, his isolationist foreign policy views and his insistence that his campaign did not collude with Russia.

Trump acknowledged the standoff with Democrats over funding for his long-promised border wall has no foreseeable end date.

“I can’t tell you when the government is going to be open. I can tell you it’s not going to be open until we have a wall, a fence, whatever they would like to call it,” he said.

As uniformed servicemen were beamed into the Oval Office via satellite from US bases in Alaska, Bahrain, Guam and Qatar — but not war zones like Iraq, Afghanistan or Syria — Trump said he was pleased to see rich nations like Qatar — “There are many, many ways of pronouncing it,” Trump observed of the Gulf nation — chipping in for regional security efforts.

“It will be nice when we can ask for a lot less money for our military,” Trump said, without referring specifically to recent decisions to draw down troops in Syria and Afghanistan. “We’re, right now, the policemen of the world and we’re paying for it. And we can be the policemen of the world, but other countries have to help us.”

And though he expressed…

Trump ‘plunging us into chaos’, Democrats say, as markets tank and shutdown persists

Trump with Schumer and Pelosi earlier in December. They said: ‘Instead of bringing certainty into people’s lives, he’s continuing the Trump Shutdown just to please rightwing radio and TV hosts.’

Top Democrats have accused Donald Trump of “plunging the country into chaos” as top officials met to discuss a growing rout in stock markets caused in part by the president’s persistent attacks on the Federal Reserve and a government shutdown.

“It’s Christmas Eve and President Trump is plunging the country into chaos,” the two top Democrats in Congress, House speaker nominee Nancy Pelosi and Senate minority leader Chuck Schumer, wrote in a joint statement on Monday.

“The stock market is tanking and the president is waging a personal war on the Federal Reserve – after he just fired the Secretary of Defense.”

Trump criticized the Federal Reserve on Monday, describing it as the “only problem” for the US economy, even as top officials convened the “plunge protection team” forged after the 1987 crash to discuss the growing rout in stock markets.

The crisis call on Monday between US financial regulators and the US treasury department failed to assure markets, and stocks fell again amid concern about slowing economic growth, the continuing government shutdown, and reports that Trump had discussed firing Federal Reserve chairman Jerome Powell.

The Dow Jones plummeted 653 points in a shortened trading day on Monday, capping its worst week in a decade and reportedly marking its “worst day of Christmas Eve trading ever”. Investors appeared increasingly skittish.

The S&P 500 also dropped 2.7%, leaving it on pace for its biggest percentage decline in December since the Great Depression and indicating a move to a bear market, according to CNBC.

In a tweet that did nothing to ease market concerns about the Fed’s cherished independence, Trump laid the blame for economic headwinds firmly at the feet of the central bank.

“The only problem our economy has is the Fed. They don’t have a feel for the market,” Trump said on Twitter. “The Fed is like a powerful golfer who can’t score because he has no touch – he can’t putt!”

Trump has frequently criticized the Fed’s raising of interest rates this year and has gone after Powell several times, telling Reuters in August he was “not thrilled” with his own appointee. The Fed increased rates again last week.

The…

Trump assails Fed as the ‘only problem our economy has’

President Donald Trump lashed out at the Federal Reserve on Monday after administration officials spent the weekend trying to assure the public and financial markets that Jerome Powell’s job as Fed chairman was safe.

“The only problem our economy has is the Fed,” the president tweeted Monday. “They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch — he can’t putt!”

On Wall Street, stocks had already been down but intensified their fall after Trump’s tweet. Markets are facing their worst month in a decade over fears about a U.S. trade war with China, a slowing global economy and chaos in the Trump White House. By the close of a holiday-shortened trading session Monday, the Dow Jones Industrial Average had sunk 653 points for the day — 2.9 percent.

Trump’s latest tweet attacking the Fed was met with concern that any effort to diminish Powell or remove him as chairman could destabilize the economy.

“He is seeking open warfare on Christmas Eve,” said Peter Conti-Brown, a financial historian at the Wharton School of the University of Pennsylvania. “We’ve never seen anything like this full-blown and full-frontal assault. This is a disaster for the Fed, a disaster for the president and a disaster for the economy.”

The president has expressed frustration over the Fed’s decision to raise its key short-term rate four times this year. Those moves are intended to prevent…