Wednesday, July 31, 2019

What did Donald Trump do today?

He forgot to mention something about interest rates.

Today, Trump continued his pattern of abusing Jerome Powell, his own hand-picked chair of the Federal Reserve, for acting independently. The Fed voted today to lower interest rates by a quarter point, the first such drop since the Great Recession bottomed out in 2008. 

Trump had been pushing for an interest rate cut to stimulate the economy—a little like pouring gasoline on a fire. (His corporate tax cuts had the same effect, flaring off money that wasn't needed to support an economy that wasn't in trouble yet.) But rate cuts are normally used to prevent financial disaster—and lately, the Fed seems to agree that an economic disaster is coming. 

Still, Trump was upset by getting what he wanted, because Powell didn't promise more, and didn't publicly agree with Trump's theory that interest rates should always be low. Trump whined on Twitter:

As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn't have started in the first place - no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!

Ending "quantitative tightening" is another emergency measure the Fed uses to stave off the worst of a recession. "No inflation" is actually a very bad sign for an economy—economists are usually happiest with about 2% inflation—so it's a good thing Trump is wrong about that, too.

Trump has been so obvious about tying Fed policy to "winning" the 2020 election that it's easy to forget that he personally benefits from lower interest rates. Trump came into office with a third of a billion dollars in debt to one bank alone. In fact, even with financial disclosure forms, it's hard to know how much Trump owes. Counting his businesses debts, which he continues to draw income from, it was at least $2 billion when he assumed office and started calling for rate cuts.

A quarter-point rate cut isn't enough for most consumers to notice. It won't make refinancing a mortgage attractive for homeowners. But it will save Trump tens if not hundreds of millions of dollars in debt finance.

Why does this matter?

  • Presidents are supposed to do what's best for the country, not their private bank accounts.
  • It's bad if the president doesn't understand how the basic safety mechanism for the world economy works.
  • It's extremely bad if he does know, but ignores it to do what's best for himself anyway.