Zinger Key Points
- Former President Trump spent nearly a year insisting that Jerome Powell and Fed officials cut interest rates.
- Tim Duy, Chief U.S. Economist said Trump was right, but he may have been right by accident.
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The Fed cut interest rates to zero in late 2008 in an unprecedented move to aid the U.S. economy in coping with the effects of the 2008 global financial crisis. Seven years later, when the economy slowly started to revive, the central bank cautiously started hiking interest rates.
The rate increases, which began in 2015 and continued into 2018, drew a negative reaction from then President Donald Trump, who said in an 2018 interview with Fox Business, "[the] biggest threat is the Fed, because the Fed is raising rates too fast."
Then in 2019, the Fed and its leaders did something unusual - they acknowledged they were wrong in their short and long-term predictions for the U.S. economy. The central bank began a major policy reversal — from raising interest rates in 2018 to lowering them in 2019, something Trump had urged — putting the economy in a strong position for 2020.
Read also: As Fed's Interest Rate Decision Looms, Here's What To Watch On Bitcoin, Crypto Sector
Trump spent nearly a year insisting that Jerome Powell and Fed officials cut interest rates, he also urged the Fed to begin expanding its balance sheet while it was still actively contracting.
Prior to the 2016 election, Trump threatened to oust Powell, the Fed's chosen leader, for not lowering interest rates enough. He also argued that former President Barack Obama benefited from the Fed's accommodating monetary policy and desired similar treatment.
It should be emphasized that Trump ran record deficits long before COVID, which made his fiscal policies inflationary. Due to his tax cuts and inability to rein in government expenditure, the government borrowed more money, forcing the Fed into further debt.
Tim Duy, Chief U.S. Economist, said Trump was right, but he may have been right by accident. “The Fed did have to back off of both policies, they did have to reverse course on interest rates, and they did have to reverse on the balance sheet. Trump was not wrong on both of those issues, but how he got there might’ve been wrong.”
Photo: Courtesy of Brookings Institution and Gage Skidmore on flickr
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