Opinion

Trump Betrays His Base On The Fed

As Ryan McMaken, among others, noted this week President Donald Trump has seemed to pivot his attention away from his economic legislative agenda and more towards foreign policy matters. Given the legislative frustrations over Obamacare repeal, and his Goldman-led Treasury’s insistence on the sort of revenue-neutral tax reform that may have a hard time getting through a Republican Congress, Trump defenders could place most of the blame for this strategic shift to the political realities of Congress. Today, however, Trump has signaled a retreat from his campaign rhetoric on an issue he has complete control over: whether or not to keep Janet Yellen as Fed chair beyond 2018.

During an interview with The Wall Street Journal, Trump was asked if Janet Yellen was “toast.”

His response:

No, not toast…I like her, I respect her. It’s very early. I do like a low-interest rate policy, I must be honest with you.

While Trump’s comments are not a full commitment to denominating Yellen, it is a complete reversal from his rhetoric during the campaign.

Last September, Trump said Yellen should be “ashamed of herself” for the policies at the Fed. Later that month, during a debate, Trump went on to say, “The Fed is not doing its job. The Fed is being is more political than Hillary Clinton.”

Considering Trump is now supporting ambitious spending plans, including dramatic increases to American military spending, it is not surprising to see him voice support for low interest rates. His presidency so far has also enjoyed a favorable “Trump bump” in stocks, the continuation of a bubble that could be quickly popped if interest rates normalize. In terms of his own self-preservation, Trump’s recent comments make perfect sense and reflect signals we have been receiving from Treasury Secretary Steve Mnuchin.

It must be pointed out though that Trump made it perfectly clear during the presidential campaign that he understands the Fed’s low-interest rate policy has very real consequences beyond Wall Street.

During an interview with CNBC he noted:

I think [the Fed] is keeping rates down…because they want to keep the market up.

The people that are hurt the worst are the people that saved their entire lives and expected to live off the interest and those people are getting absolutely creamed. In other words, the people that did it right. They saved their money. They cut down on their mortgages. They did everything exactly right and now they’re getting practically zero interest on the money they worked so hard for. Those people, you could almost say they have been discriminated against….As a real estate person I love it…but for the country something has to happen.

In other words, the people that are hurt the most by the policy Trump is now advocating are the very sort of people who voted for him.