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David Mullin's avatar

On multiple fronts the Trump Administration is facing supply shocks of its own creation: tariffs, mass deportations of migrant workers, escalating military conflict in the Middle East. If this persists, there will inevitable stagflation. Cutting interest rates is no cure.

Given the compliant Congress, the risks are escalating that the Trump Administration will succeed in debasing the U.S. dollar. They are willing to do that for a doomed short-term fix to finance the BBB, causing a debt spiral, by attempting to cut short-term interest rates to 1-2 percent. Long-term rates will go the opposite direction, then short-term rates will explode.

The recent SCOTUS shadow docket ruling attempting to preserve the Fed's independence is only a Band-Aid. Only Congress standing up to the Trump Administration will avert this. I am not optimistic. The surest political bet in Washington so far is Republican capitulation.

Free access article. https://www.wsj.com/economy/central-banking/federal-reserve-interest-rates-pressure-trump-4ffd1edd?st=384NPo&reflink=desktopwebshare_permalink

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