The Daily Signal - VDH: Is Fed Chair Jerome Powell Fighting Inflation—Or Trump?

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Starting point is 00:00:25 We'd love to talk. Business. The chairman of the Federal Reserve, Jerome Powell, has been in this fight with Donald Trump. He doesn't understand the art of the deal language. Donald Trump has called him too late Powell, criticized him personally. He's dug down. And whether we like it or not, he's acting emotionally or angrily to Donald Trump. So what is going on?

Starting point is 00:00:47 The argument from the Trump side is the economy does not show signs of inflation. If there is a fear of recession, they lower interest rates and then people have easier access to money, so that stimulates them to spend and to acquire and then to avoid a recession. People had argued that the tariffs and a trade war and gargantuan stock increases would create inflation. Therefore, Powell had to keep interest rates high. And the problem with that stance is it really hurts millions of Americans who are trying to buy a home. Hello, this is Victor Davis-Hanson for the Daily Signal. There's been a lot of controversy recently about the relationship between the chairman of the Federal Reserve, Jerome Powell, and Donald Trump president.

Starting point is 00:01:43 And the argument from the Trump side is that the economy does not show signs of inflation. People had argued, especially perhaps Powell himself, that the tariffs and a trade war and gargantuan stock increases would create inflation. therefore he had to keep interest rates high at about 4.3, which translates into 30-year mortgages over 7%. On the other hand, Donald Trump said there's no evidence there's an inflation, and we would like to get some stimulus to avoid a recession. In other words, why don't you go down a point or maybe even two points in the manner that we saw at the early years of the Biden administration before Biden's hyperinflation, which the Fed, remember, was very slow to react.

Starting point is 00:02:35 Janet Yellen assured us that inflation was nothing to worry about, that it was transitory, and the Fed was too slow, and we got up to a hyperinflation, 22, of 9%. In general, remember how the Fed works. If there is a fear of recession, they lower interest rates, and then people have easier access to money, so that stimulates them to spend and to acquire and then to avoid a recession. If there's too much inflation, people are afraid that the economy will overheat

Starting point is 00:03:09 and we'll get a boom and bus cycle and the value of our money will diminish, so interest rates go up. Trump's argument, though, is that Powell is inconsistent. During March and April, when, to take one example, the Wall Street Journal was forecasting a stock crash, a trade war, uncertainty over tariffs, anemic GDP, and all of the barometers, if you read paragraph after paragraph of story after story, it was doom and gloom in March and April. At that point, you would have thought that Powell, who agreed basically with the consensus

Starting point is 00:03:50 of the economic media and most of the economists, why didn't he intervene in fears that they were right, that we were headed toward a recession and lower rates. Instead, he didn't do anything. Now that all of those warnings turned out to be, what, non-factual, inappropriate, incorrect, suddenly he hasn't lowered interest rates. And the other, what we're getting at is that there is no sign of inflation. So traditionally, if there's no sign of inflation and the economy's doing well and you want to make it even do better, why not go down a little bit? So what is going on? I think a lot of it's going on to finish is that Jerome Powell has been in this fight with Donald Trump. He doesn't understand art of the deal language. Donald Trump has called him too late Powell,

Starting point is 00:04:45 criticized him personally. He's dug down. And whether we like it or not, he's acting emotionally or angrily to Donald Trump, and he's been under threat of being fired. He does not want to show that he's going to back down and lose the independence of the Fed to the president. The problem with that stance is it really hurts millions of Americans who are trying to buy a home at 7% interest when the economy is not inflationary, and we're losing a wonderful opportunity. More importantly is, remember, Donald Trump says he's going to reduce the deficit, but he's not going to touch Social Security.

Starting point is 00:05:22 He's not going to touch defense, Medicare, but he's going to cut taxes and deregulate. So until that stimulatory activity occurs and we get more revenue, we're going to be in a shortfall that the deficit either will not be cut or it will rise. So what is Donald Trump trying to do?

Starting point is 00:05:42 He's trying to look at non-traditional ways of raising revenue or cutting expenses, and therefore, getting closer to a budget that could be balanced. Number one, the Doge people say that by the end of the year, they will have cut $200 billion. That would be $200 billion off of a $2 trillion deficit. The tariff people, the Secretary says that of Treasury,

Starting point is 00:06:11 Scott Besant, says that we're going to get an additional third of a trillion dollars, $300 billion plus in tariff revenues. With those cuts and those additions and revenue, we might have, I don't know, half a trillion dollars. And Donald Trump, in his part, says, just lower the interest rate. Instead of paying $3 billion a day, we might pay $2 billion. And that over the year might save $300 billion. You see where they're getting at? They're trying to get up to $800 billion, and therefore cut the entire deficit by 40 percent

Starting point is 00:06:49 without raising taxes, without cutting Medicare, without cutting Social Security, without cutting defense. It's pretty hard to do, but that's the driving force behind the anger. It's not just that Powell may strangle the economy, but that he's killing Donald Trump's initiatives by this $3 billion a day in interest rates. Finally, Powell's got to kind of shrug off the attacks by Trump. His duty is, yes, it's to be. independent, but it's to be consistent. He can't show us that fears of a recession lead to lower

Starting point is 00:07:27 interest rates and fears of inflation lead to highest interest rates. We should never raise interest rates 60 days before a presidential election. He did that on September 18th or cut interest, either one, but he cut interest on the 18th of September, less than two months before the 2024 presidential election. In some ways, in conclusion, he reminds me of Merrick Garland. Merrick Garland, remember, was a Supreme Court nominee, and Mitch McConnell and the Republicans invoked in kind of a boomerang fashion the Biden rule that a lame duck presidency, I.E. Barack Obama could not nominate 11th hour Supreme Court nominee, which happened to be Merrick Garland. They didn't even give him a chance to

Starting point is 00:08:15 come up for a vote. He was very bitter. And as a reward out of that bitterness, Joe Biden made him Attorney General. And we know from the Jack Smith Special Counsel, the Robert Hur, special counsel, what the DOJ did as far as the FBI overreach, that he was a very bitter and very angry person who let the political animus shown toward him affect him and he was not a disinterested attorney general. Let's hope that Mr. Powell learns that lesson, shrugs off criticism, and then shows a consistency through the Biden years and the Trump years that when he has data that show a stable or booming economy, he keeps interest stable or he raises them a little bit.

Starting point is 00:09:09 and when he has a stable but weakening a common economy, in some ways he lowers interest rates. And he's oblivious and impervious to what comes out of the White House. Thank you very much. This is Victor Davis-Hansson for The Daily Signal. Thank you for tuning in to the Daily Signal. Please like, share, and subscribe to be notified for more content like this. You can also check out my own website at victorhansen.com and subscribe for exclusive features. in addition.

The Daily Signal - VDH: Is Fed Chair Jerome Powell Fighting Inflation—Or Trump?

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