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Does Trump actually want lower rates?

Summary:
Oh, I know that Trump wants the Fed to cut its target rate ASAP. But that’s not my question. My question is whether Trump actually wants lower interest rates over an extended period of time. Here’s Yahoo: Well, President Donald Trump got his interest rate cut… sorta. Trump warned on Twitter over the weekend that tariffs on 0 billion in Chinese goods could rise to 25% on Friday. He added that a 25% tariff will soon be assigned to a selection of 5 billion in presently untaxed goods. The proclamation uprooted the latest push higher in stocks globally, with the bellwether Dow Jones Industrial Average losing more than 400 points early on in Monday’s session. But, the yield on the 10-year Treasury note dropped to 2.48% as investors flocked to the government-backed safe-haven.

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Oh, I know that Trump wants the Fed to cut its target rate ASAP. But that’s not my question. My question is whether Trump actually wants lower interest rates over an extended period of time.

Here’s Yahoo:

Well, President Donald Trump got his interest rate cut… sorta.

Trump warned on Twitter over the weekend that tariffs on $200 billion in Chinese goods could rise to 25% on Friday. He added that a 25% tariff will soon be assigned to a selection of $325 billion in presently untaxed goods.

The proclamation uprooted the latest push higher in stocks globally, with the bellwether Dow Jones Industrial Average losing more than 400 points early on in Monday’s session. But, the yield on the 10-year Treasury note dropped to 2.48% as investors flocked to the government-backed safe-haven.. .

So, in effect, with a series of tweets the president managed to make it cheaper — at least for the short-term — to take out a mortgage or buy stuff on variable rate credit cards.. .

“He got what he wanted on rates,” AGF Investments Chief U.S. Policy Strategist Greg Valliere told Yahoo Finance Monday.

Trump has made his views on Federal Reserve Chair Jerome Powell no secret.

Actually, Trump has made his preferences a secret. Trump has never told anyone how he would like the rate cut to be accomplished. He hasn’t told us whether he’d prefer a brief rate cut, followed with considerably higher interest rates over time, or whether he’d prefer a policy that cut interest rates over an extended period of time. The former involves easy money and the latter involves tight money.

In other words, Trump hasn’t told us whether he’s a low rate guy who favors slow NGDP growth, or whether he’s a high rates guy who favors fast NGDP growth.

You may think you know what he wants, but he’s never told us.

In any case, Yahoo is right. Trump’s recent actions did result in an interest rate cut. All of you who insisted that “Trump was right about the need to cut rates” can now bask in your “success”.


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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