#the fed

This morning’s busy so this note will have to be shorter than normal, I’m afraid. Luckily it’s a fairly straightforward topic and Catherine Rampell does a really good job explaining the economic details feeding into this whole situation. If you’re interested do pop over and read her piece. 

Briefly:

1) The Fed sets America’s monetary policy. One of their biggest roles is setting the interest rates at which institutions can borrow from the government. Mortgages, car loans, credit card interest, and all other sorts of consumer borrowing are usually relative to this rate, so it affects costs for all of us, not just big banks. Lower rates generally lead to more business growth; higher rates typically lower inflation.

2) Trump wants the Fed to do what he says with interest rates. This isn’t how the Fed is supposed to work. In a very real way, the whole point of the Fed is it’s politically independent.

3) If you think Trump agrees with that approach, have I got a bridge to sell you.

4) Trump pushed hard to get the old Fed chair (Jerome Powell) out of his role more quickly precisely because he wouldn’t take orders from the White House. It didn’t work. Powell stepped aside after his term ended and after the DOJ paused some bogus investigations into him.

5) The presumptive new Fed chair, Kevin Warsh, is really only under consideration because he’s all but promised to do what Trump says, specifically to drop rates. 

6) The economy’s not quite in a tailspin, but inflation and some other economic indicators are bad enough the Fed almost certainly won’t lower rates again, probably not for at least a year. Catherine lays out the details.

7) The Fed is an actual board. The chair is just one member. Even if he wanted to, he can’t lower rates on his own.

8) Again, if you think Trump accepts that reality, have I got a bridge to sell you. Or possibly just a totally-made-in-America Trump phone.

So it’s looking like Kevin Warsh may be the dog that caught the car here. It’s enough to make me smile. Those rare moments when reality catches up with Trump and his enablers usually do.

In fairness, from what little I’ve heard about Warsh, he seems more like a Scott Bessent or Marco Rubio than a Pete Hegseth type. He seems to have a decently traditional background and isn’t a stupid person. I doubt I’d agree with his positions, but he also doesn’t seem like a crank or a Fox News host. At a certain level I even pity him. I certainly hope he can’t bend the institution completely to Trump’s wishes, for all our sakes. Still, if you work with this administration, in a very real way this is what you get. Catherine had it precisely right with her closing line: “Congrats on your new gig, Mr. Chairman. Good luck to you.”

Musical Break

More News on The Fed, and the Economy Generally

Paul Krugman: "The Vindication of Bidenomics"

Axios: “How Jerome Powell navigated pandemic, inflation and Trump” (PF)

Financial Times: “Protectionism makes everyone poorer during global shocks” (PF)

The New Yorker: “The Lessons from Jerome Powell’s Defiance of Donald Trump” (PF)

Foreign Policy: “Trump’s Plan B for Tariffs Rests on Shaky Foundations” (PF) Yeah, apparently we’re still doing this.

The Atlantic: “What’s Going on With This Stock Market?” (PF)

Le Monde: “Is it really possible to tax oil companies' windfall profits?” (PF)

The New York Times: “Do Higher Taxes Drive the Rich Away? Mamdani’s Plan Revives the Question.” (PF)

Rolling Stones: “America’s Debt Is Soaring Under Trump. Yes, It Matters” (PF)