The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

The Designated Fall-guy

08/23/2019

When the Fed raised interest rates last December, the weight of economic data justified it, although I wrote then that the increased quantitative tightening (QT) was unnecessary.  Hindsight is a wonderful thing!  While I was right about QT, raising the interest rate was clearly a mistake.  Last month, the Fed admitted their error and reversed course.  After all, they are human.  Unfortunately, that error legitimized the President’s continued attack on the Fed.

No President wants higher interest rates, and that’s especially true for real estate developers.  Maybe, it is the combination of the two that explains President Trump vociferous attacks on the Fed in general and Jay Powell in particular?  Those attacks have been deeply personal, which is unfair and in poor taste.

Several political economists have suggested that the President is simply setting up a “fall-guy” in case the economy does falter before next year’s election.  If the economy remains good, he can take the credit.  If it weakens, he can blame the Fed.  It’s a Win-Win!  Of course, economists are a pretty cynical bunch!

Poor Jay!  He doesn’t deserve this . . .

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