Published August 9, 2019
With the broad stock market up 17 percent year to date, the U.S. would seem to be on strong economic footing. Job growth is robust, profit growth is good enough, unemployment is low and consumer confidence is strong. So what is so wrong that the Federal Reserve was prompted to cut interest rates? Interest rate cuts are usually reserved for a weak economy.
There are numerous reasons. The president mounted a campaign to get the Fed to cut rates, which worked. The Fed was intimidated into cutting rates, because the financial markets came to expect a cut and actually demanded it. How can a market demand anything, let alone a rate cut? Well, when the financial markets bet that interest rates will go down and rate cut expectations go up, the Fed is in the crosshairs. The president’s demand clearly influenced the Fed.
Why did the president want a rate cut? The short answer is that it was good for his reelection prospects. The president has enjoyed the benefit of a strong economy, but with his favorability numbers still weak, he wanted some insurance.
Adding fuel to the fire, the president’s tariff wars are taking their toll. He promised that trade wars are “easy to win,” but they are proving to be anything but. Instead of working through existing trade agreements, the president opted to tear them up, bypass our trade allies and go head to head with China.
The president found the Chinese intransigent. That should not be a surprise to anyone with even the slightest knowledge of China. After all, China has a culture built over thousands of years as well as a long history […]