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We congratulate Eric Rosengren, President of the US Federal Reserve in Boston, for telling the truth to President Trump's boastfulness.
Trump spent more than a year trying to convince the US Federal Reserve to cut interest rates, while pursuing extremely destructive trade wars against the more recent nations that stung him.
Rosengren, rightly, said to the Washington Post that Trump has things precisely backwards. The best economic policy would be to keep interest rates stable while eliminating Trump's new rates.
"You do not want to ask for accommodation [in interest rates] at a time when you do not need it, partly because you do not have one when you need it and partly because there are side effects to lower rates d & # 39; interests. This encourages people to take more risks, "said Rosengren.
This is the case that my colleague Tiana Lowe and I presented separately in these pages. As I said five weeks ago, the "risk" mentioned by Rosengren is that "the lower the interest rates go down, the more people will be encouraged to borrow and the less they save. Private and public debts reaching or reaching record levels, it is an economically dangerous scenario. "
In addition, to the extent that an economic slowdown or even a recession could be in place, it is Trump's own actions that catalyze these dangers, and not the absence of a drop in interest rates.
"What has prevented the economy from strengthening is the global economic slowdown and tariffs," Rosengren said. He is right again, although he has explained it in an inelegant way. Replace the "and" in his statement with "that is caused by" and you will get a better picture. As in: The US economy is slowed by the global slowdown which is caused by Trump's rates.
The rates have a negative training effect that harms US consumers and foreign manufacturers, which reduces the appetite of foreigners for US products and slows the speed of trade. In short, Trump's tariffs have cut the nose of the US economy while trying to thwart the faces of China, Japan and its European allies.
In the hope, Rosengren will be able to convince his Fed colleagues not to lower interest rates for the moment. The Fed must continue to prove that it is immune from the pressure of a president worried about his re-election campaign rather than for his long-term economic stability.
The US benchmark rate is now below 2.25%, which is extremely low by historical standards. There is no need to cut it further.
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