The effective intimidation of the powerful Federal Reserve by Trump

The Federal Reserve (the Fed) – the US version of a central bank – is a strange duck. It is the most powerful regulator of the US government. After all, it regulates currency and interest rates. Yet its budget comes entirely from the banking sector and relations with the financial sector. Thus, the Congress, which allocates funds to all other federal agencies, has little weight on the operations of the Fed.

This independence – except for the big banks – is intentional when the Fed was designed by President Woodrow Wilson more than a hundred years ago. The Fed, a secret and private government within a public government poses problems for a democratic society. The alternative was deemed worse by its boosters, allowing the "policy" to determine the decisions of the Fed's board of governors.

It's as if the banking complex / Federal Reserve did not deal with political power by its own definition. The Fed is holding back the power of banks without being accountable to Washington. Ask Congressional Republicans if they generally oppose government regulation of businesses and most will say "yes." Ask them if they wish to deregulate the Federal Reserve and they will answer "of course not." Someone must ensure monetary stability.

But the announced reduction of a quarter of a percentage of Fed interest rates, which was already low by historical standards (2.25 to 2.50), will affect the population, beyond the abstract monetary theories. Tens of millions of Americans who derive their income from their savings accounts and their money market accounts will receive less money. Some will enter the stock market with outstanding performance, probably to increase their income and pose a real risk to their principal.

The $ 2.9 trillion social security trust fund will receive less revenue from low-yielding treasury bonds. It's not good for seniors. This is also very bad for pension funds, not to mention the performance of some life insurance policies.

The Fed mumbled something about the trade war and the recent slight decline in manufacturing indexes, which helped avoid problems.

But companies accumulate unused capital without knowing what to do other than spending billions of dollars on non-performing share buybacks. There is no shortage of capital. Reducing the interest rate will only encourage more unnecessary business debts, with its deductible interest payments, instead of encouraging companies to use their own funds. available.

Allan Sloan, Venerable Economic Columnist do not thinks that half a point cut by the Fed "will generate US investment-creating dubious jobs for the future because of trade wars, threats of trade wars," he said. interruptions in supply chains and other real and potential instabilities "(see Allan Sloan's article here).

Sloan has given other compelling reasons against a reduction of interest rates by the Fed, while conceding that this could help borrowers. This badumes that gougeros lenders (payday loans, auto loans, credit card fees) pbad on the savings.

Critics of the Fed's cuts this week are pointing to already low interest rates and what they call a heavy economy, modest inflation and low unemployment.

Some former Fed governors have called on the Fed for failing to explain clearly and specifically its decision to cut rates. Sarah Bloom Raskin, former Fed governor and Under-Secretary of the Treasury, said, "The Fed really had a miscommunication … If the Americans do not understand exactly what's going on and why, they might think that the President Jerome Powell yields to presidential intimidation. "

No kidding. Trump is hammering the Fed and threatening to pull President Powell out of power for months. He is asking for big cuts in interest rates. He reiterated his denunciation after cutting the Fed a quarter of a percent this week, tweeting that it was far from enough!

Presidents almost never do this publicly at the Fed. But Trump, the tsar who failed the game knows better. The intimidation by the media continues and still works for Trump.

Although the Fed wants to resist its pressure, why take more risks with the crazy Donald? Instead, they threw him a bone.