On Friday, Federal Reserve Chairman Jerome “Jay” Powell will have the chance to prove he has guts.
For months, President Trump has been bullying the guy he picked to run the Fed, insisting that the nation needs lower interest rates while, at the same time, saying the US economy is doing just fine.
Well, the Kansas City Fed’s annual conference in Jackson Hole, Wyo., starts on Thursday, and Powell speaks the next day. He’s the star attraction and the only reason anyone cares about this conference.
Will Powell cave in to the president and hint at interest rate cuts in the near future?
Will he tell the president to shove it because the Fed functions independently of any political pressure?
Or will Powell give some incomprehensible academic speech on the economy that descends into gibberish and completely avoids the issue of rate cuts, the president and the Fed’s role in the world?
If you are looking for an answer from me, you aren’t going to get it. I don’t know what he’ll do.
I’ve never met Powell. And I don’t know what kind of man he is. But if he wants to go down in history as the savior of the Fed in times of trouble, he had better stand up to the president — even if it means that Trump tries to fire him.
Here’s the dilemma Powell faces.
Right now, the US economy is doing just fine, even though the Democrats and their media allies keep talking about seeing a recession on the horizon and Trump keeps bringing up the possibility as an excuse for the Fed to cut interest rates.
The president seems to think he’s owed an interest rate cut — actually four quarter-point cuts is what he wants — just because the Fed was more accommodative for President Barack Obama.
Remember the old Smothers Brothers show and their bit about “Mom always liked you best”? Well, Trump is stealing those lines. “The Fed always liked Obama better,” he’s whining.
The Fed did make mistakes during the Obama presidency. It kept interest rates too low for too long.
And the result was a ho-hum economy that ended up costing the Democrats the last presidential election.
Those low rates helped borrowers for a while. But after years and years of cheap interest rates, they had the opposite of the effect intended. They took money away from savers, who had to cut back their spending. And that hurt the economy.
Sure, the stock market boomed because savers were forced to become Wall Street speculators. But having money in a brokerage account or in the bank are two different things. Bank money gets spent. Wall Street money gets tied up in accounts and doesn’t help the economy.
Trump is trying to protect himself against a recession before next year’s election by asking for lower interest rates.
He is also trying to protect himself from blame in case a recession happens. A couple of days ago, he called for a tax cut that he knows will never be passed by Congress.
Trump backed off the tax cut Wednesday, but the idea was actually politically ingenious. And you can bet the tax cut call will be revived.
If the economy does go into a recession, the president can say that it could have been avoided by tax cuts or rate cuts. If there isn’t a recession, the president is safe anyway.
Any decision on the next rate cuts will be made on Sept. 18. But on Friday, Powell can telegraph what might happen in September — and, at the same time, reclaim his manhood.