Please welcome your new banker overlords

[J]

https://www.bloomberg.com/opinion/artic ... nald-trump

The Fed Shouldn’t Enable Donald Trump
The central bank should refuse to play along with an economic disaster in the making.
By Bill Dudley
August 27, 2019, 6:00 a.m. EDT

U.S. President Donald Trump’s trade war with China keeps undermining the confidence of businesses and consumers, worsening the economic outlook. This manufactured disaster-in-the-making presents the Federal Reserve with a dilemma: Should it mitigate the damage by providing offsetting stimulus, or refuse to play along?

If the ultimate goal is a healthy economy, the Fed should seriously consider the latter approach.

The Fed’s monetary policy makers typically take what happens outside their realm as a given, and then make the adjustments needed to pursue their goals of stable prices and maximum employment. They place little weight on how their actions will affect decisions in other areas, such as government spending or trade policy. The Fed, for example, wouldn’t hold back on interest-rate cuts to compel Congress to provide fiscal stimulus instead. Staying above the political fray helps the central bank maintain its independence.

So, according to conventional wisdom, if Trump’s trade war with China hurts the U.S. economic outlook, the Fed should respond by adjusting monetary policy accordingly — in this case by cutting interest rates. But what if the Fed’s accommodation encourages the president to escalate the trade war further, increasing the risk of a recession? The central bank’s efforts to cushion the blow might not be merely ineffectual. They might actually make things worse.

Fed Chairman Jerome Powell has hinted that he is aware of the problem. At the central bank’s annual conference in Jackson Hole last week, he noted that monetary policy cannot “provide a settled rulebook for international trade.” I see this as a veiled reference to the trade war, and a warning that the Fed’s tools are not well suited to mitigate the damage.

Yet the Fed could go much further. Officials could state explicitly that the central bank won’t bail out an administration that keeps making bad choices on trade policy, making it abundantly clear that Trump will own the consequences of his actions.

Such a harder line could benefit the Fed and the economy in three ways. First, it would discourage further escalation of the trade war, by increasing the costs to the Trump administration. Second, it would reassert the Fed’s independence by distancing it from the administration’s policies. Third, it would conserve much-needed ammunition, allowing the Fed to avoid further interest-rate cuts at a time when rates are already very low by historical standards.

I understand and support Fed officials’ desire to remain apolitical. But Trump’s ongoing attacks on Powell and on the institution have made that untenable. Central bank officials face a choice: enable the Trump administration to continue down a disastrous path of trade war escalation, or send a clear signal that if the administration does so, the president, not the Fed, will bear the risks — including the risk of losing the next election.

There’s even an argument that the election itself falls within the Fed’s purview. After all, Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives. If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020.

The former head of the NY Federal Reserve (and of course a Goldman-Sachs alumni) thinks the Federal Reserve should get into the kingmaking business. Not that they haven't already been doing this for ages with their policy choices, but to come right out and say it...well...that's a bit worrying...

[K. A. Pital]

It's treason then.jpg

It looks like a misguided attempt to prevent friendly fire by one part of the oligarch class towards the other part.

[ray245]

It's treason then.jpg

It looks like a misguided attempt to prevent friendly fire by one part of the oligarch class towards the other part.

It's not friendly fire if one group of oligarchs has never felt they were in the same group as the others. Trump has never been popular among many, many oligarchs to begin with. They often view him as a terrible business partner.

[Zaune]

Anyone else feel like we're overdue another one of those bunker threads?

[Mr Bean]

Anyone else feel like we're overdue another one of those bunker threads?

I really loved that Bunker thread, I'm still sad Broomstick lost interest in detailing the one that started getting worked on.

That said the last thing the Fed needs to do is overtly get into politics any more than it already does. It's already bad enough with the chairmen having the ability to crash or grow the markets by coughing to loudly near a microphone. But then the old idea of the Fed trying to manage things to prevent booms and busts died the first time we had a boom and the politicians said keep it going it helps me get votes. Remember kids what happens to the company next year is someone else problem all that matters is this quarter and how big a bonus you net right this minute.