Why Trump Is Making A Huge Mistake Keeping The Federal Reserve Status Quo

The Federalist | 11/7/2017 | Willis L. Krumholz
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President Trump just nominated Jerome Powell, a lawyer and former investment banker, to chair the Federal Reserve. Powell’s nomination is seen as the safe choice. He is a Fed insider, appointed to the Federal Reserve Board of Governors by Barack Obama in 2012. Powell generally supports the administration’s deregulatory agenda for banks, but will stray little from current Fed Chair Janet Yellen’s monetary policy.

Aside from being the safe choice, Trump’s reasons for appointing Powell are quite clear. A more conservative Fed chair might seek to reduce monetary stimulus more quickly and move interest rates higher. A more conservative Fed chair might also seek to raise rates even if inflation remained low, or question the Fed’s inflation targeting framework altogether.

President - Wisdom - Interest - Rates - Watch

No modern president steeped in conventional wisdom wants to see interest rates rise too quickly on his or her watch. And Trump has repeatedly expressed his love for low interest rates. The conventional wisdom says low rates are always good for economic activity. As long as inflation remains low—a sign the economy is not overheating—rates can remain low too.

This conventional wisdom is wrong, however, and Powell will likely continue the failed monetary status quo. This means subdued American economic growth, more debt, and slower real wage growth for Americans.

Years - Workers - Wages - Wages - Tax

In the last 30 years, median workers’ real wages have been flat. Since the late 1990s, median real wages have declined. Tax policy, education, and regulation are important for real wage growth, but nothing affects the long-term trajectory of economic growth more than monetary policy.

Yes, low wage growth is partially due to demographics, more single-parent families, and women entering the workforce. But the data also shows flat median incomes since 2000, even when controlling for these other factors. This suggests another factor at play, especially in certain industries.

Example - Manufacturing - Construction - Mining - Transportation

For example, manufacturing, construction, mining, transportation, and...
(Excerpt) Read more at: The Federalist
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