Does Trump actually want lower rates?

Oh, I know that Trump wants the Fed to cut its target rate ASAP. But that’s not my question. My question is whether Trump actually wants lower interest rates over an extended period of time.

Here’s Yahoo:

Well, President Donald Trump got his interest rate cut… sorta.

Trump warned on Twitter over the weekend that tariffs on $200 billion in Chinese goods could rise to 25% on Friday. He added that a 25% tariff will soon be assigned to a selection of $325 billion in presently untaxed goods.

The proclamation uprooted the latest push higher in stocks globally, with the bellwether Dow Jones Industrial Average losing more than 400 points early on in Monday’s session. But, the yield on the 10-year Treasury note dropped to 2.48% as investors flocked to the government-backed safe-haven. . . .

So, in effect, with a series of tweets the president managed to make it cheaper — at least for the short-term — to take out a mortgage or buy stuff on variable rate credit cards. . . .

“He got what he wanted on rates,” AGF Investments Chief U.S. Policy Strategist Greg Valliere told Yahoo Finance Monday.

Trump has made his views on Federal Reserve Chair Jerome Powell no secret.

Actually, Trump has made his preferences a secret. Trump has never told anyone how he would like the rate cut to be accomplished. He hasn’t told us whether he’d prefer a brief rate cut, followed with considerably higher interest rates over time, or whether he’d prefer a policy that cut interest rates over an extended period of time. The former involves easy money and the latter involves tight money.

In other words, Trump hasn’t told us whether he’s a low rate guy who favors slow NGDP growth, or whether he’s a high rates guy who favors fast NGDP growth.

You may think you know what he wants, but he’s never told us.

In any case, Yahoo is right. Trump’s recent actions did result in an interest rate cut. All of you who insisted that “Trump was right about the need to cut rates” can now bask in your “success”.



36 Responses to “Does Trump actually want lower rates?”

  1. Gravatar of Benjamin Cole Benjamin Cole
    7. May 2019 at 16:07

    But it is a valid proposition that President Trump has been more or less right in the last year that the Fed’s policy has been too tight.

    The Fed has consistently missed its 2% inflation target on the PCE, a target that is supposed to be an average and not a ceiling.

    One can wonder at the trillions of dollars of lost output the US has incurred in the last 10 year, as the Federal Reserve obsessed with minute rates of measured inflation.

    Almost certainly, Trump is a bit of a hypocrite in calling for lower rates now, while sermonizing about the risks of higher rates in earlier editions of himself. But, I think he is right now.

    In general, policymakers should always error on the side of growth.

  2. Gravatar of Benjamin Cole Benjamin Cole
    7. May 2019 at 16:54

    PS: I realize that calling a politician a hypocrite is a bit like blaming a fish for swimming.

  3. Gravatar of Michael Sandifer Michael Sandifer
    7. May 2019 at 19:02

    I think we can avoid being cut here by saying that what Trump wants is a higher natural rate, even though he doesn’t seem
    bright or informed enough to know what that means. I think it’s clear he ultimately wants a booming economy to keep him in office longer and avoid criminal charges.

  4. Gravatar of Michael Sandifer Michael Sandifer
    7. May 2019 at 19:06

    In other words, if I were on the FOMC, I would understand that my job was to create enough new money/decrease demand for money sufficiently, such that short-term nominal rates are at or slightly below the natural rate, which should steepen the yield curve.

  5. Gravatar of Michael Sandifer Michael Sandifer
    7. May 2019 at 19:08

    That is, unless less is actually required. Perhaps some forward guidance would be enough to reduce money demand and raise the natural rate.

  6. Gravatar of dtoh dtoh
    7. May 2019 at 20:39

    It’s abundantly clear that President Trump wants as much growth as possible as long as it does not create excessive inflation.

    So far he’s been right (at least directionally) about the following things that many “smart sophisticated” economists have been wrong about.

    1. U6 is a terrible measure of unemployment.

    2. Tax cuts will permanently boost growth

    3. Fed guidance in February of last year was moronically incompetent.

    Additionally you of all people should know stock prices are not an accurate measure of interest rates without normalizing for changes in expected profitability. If you look at changes in Treasury yields the movement was a few basis points….. basically noise.

  7. Gravatar of Russ Abbott Russ Abbott
    7. May 2019 at 21:08

    It makes no sense to treat Trump as if he had an economic policy. He doesn’t. He isn’t smart enough to evaluate policy options, and even if he were, he wouldn’t be interested in doing so.

    Trump wants whatever he thinks will make him look good over the near term. That’s it. It has nothing to do with policy. (And he may not even be right about what will make him look good.) But acting as if Trump has an economic or monetary policy is a waste of time.

  8. Gravatar of Derrick Derrick
    8. May 2019 at 09:22

    I’ve seen no evidence that Trump has a firm grasp on monetary policy and its machinations. At most, he may have a rudimentary understanding of interest rates as they have affected his properties over the years, so he’s probably aware that he likes low interest rates, and so the country should too.

  9. Gravatar of derek derek
    8. May 2019 at 10:17

    @BenjaminCole, the way we get the Fed needing to lower rates in 2018-2019 is them forecasting that Trump is an idiot and does a variety of bad policies, such as general administrative incompetence and the trade threats that just sent equities/rates down. (Even if you think that the government is bad, note that government agencies’ goal is not to get in the way of the economy; incompetent agencies will not interfere in the economy less but will simply interfere in the economy probably even more counterproductively.) So are the FOMC releases supposed to say stuff like, “Due to presidential capriciousness, we anticipate an interest rate decline may be needed in 2019”?

  10. Gravatar of ssumner ssumner
    8. May 2019 at 10:28

    Ben, You said:

    “The Fed has consistently missed its 2% inflation target on the PCE”

    False, it was 2.03% last year. And unemployment was below their estimate of the natural rate.

    dtoh, He hasn’t been right about any of those things, and I doubt he’s ever even offered any comments on U6 unemployment. In any case, Trump now argues that U3 unemployment is correct. Do you agree that unemployment is actually 3.6%?

    The Fed’s been doing a great job with monetary policy. If the Fed had followed Trump’s advice in 2015 we would have had a recession.

    It’s silly to try to defend Trump, there’s simply nothing to defend. (He is a skilled politician, I’ll give him credit for that.)

    Russ, You said:

    “It makes no sense to treat Trump as if he had an economic policy. He doesn’t. He isn’t smart enough to evaluate policy options, and even if he were, he wouldn’t be interested in doing so.”

    Exactly. Taking Trump’s views seriously is likely trying to figure out what a monkey thinks about Fed policy.

  11. Gravatar of dtoh dtoh
    8. May 2019 at 10:49

    Is unemployment 3.6%? Depends on how you measure it. Is U6 or U3 a good measure of unemployment. Depends on what you’re trying to measure.

    How can you can conclude the Fed is doing a great job with monetary policy. The ship’s on course, the winds are steady, the ocean’s calm. The only they need to do is sit on the deck and drink grog and not touch anything. Still they’ve failed to meet their stated inflation target 14 out of the last 15 years, they’ve completely mis-estimated trend unemployment, and they nearly fired a canon shot through their own hull back in December. My dog could do a better job.

  12. Gravatar of Benjamin Cole Benjamin Cole
    8. May 2019 at 10:55


    The above FRED chart shows that the Fed has consistently missed its 2% core PCE target for the last 10 years. And remember, the 2% IT is supposed to be an average not a ceiling.

    President Trump maybe a monkey but he has outsmarted the Fed.

  13. Gravatar of Benjamin Cole Benjamin Cole
    8. May 2019 at 11:07

    Dtoh: I think you are correct. The U3 has become a worthless indicator.

    Of four jobs taken today by an adult, three are taken by someone who was not previously in the labor force, as measured. This is great news, and labor participation rates are relatively rising.

    In Japan there are about 162 job openings for every possible applicant. This level of employment is evidently finally having positive effects on wages and the ranges of opportunity open to young Japanese.

    Perhaps the Fed should not target inflation but rather a ratio of unfilled jobs to possible job applicants.

    Well, that is if you want to keep AOC out of the White House.

  14. Gravatar of Michael Sandifer Michael Sandifer
    8. May 2019 at 13:35


    While it’s true that Trump doesn’t know much about economics, and doesn’t think coherently about it, in addition to being very lazy, that doesn’t mean he doesn’t know what he wants.

    It’s possible he wants the highest growth with low inflation. Even more basically, he wants to be re-elected, if for no other reason than avoiding prison.

    Yes, Trump is particularly ignorant, stupid, and yet arrogant, along with being emotionally unstable, but other Presidents were not experts in economics either.

  15. Gravatar of Benjamin Cole Benjamin Cole
    9. May 2019 at 04:10

    8:30 Jerome Powell spech presentation: “Renewing the Promise of the Middle Class”

    There has been a flood-tide of financial types shedding tears for the middle-class, and globally. I did not say crocodiles….

    “The Federal Reserve System’s Community Development Research Conference, “Renewing the Promise of the Middle Class,” will be held May 9-10, 2019, in Washington, D.C. The conference will feature the latest research on challenges faced by low- and moderate-income families when moving into the middle class, as well as threats to the economic security of middle-class households.”


    Let’s see…property zoning, which benefits lending banks? It is so nice to lend on property, knowing competition is limited. That is money in the bank! (punny). And one half of commercial bank lending. No, property zoning not on agenda. And how about the Fed targeting 5% unemployment on the U3? No, not on the agenda.

    Hey, I have an idea: More education! You too can design advanced software, no?

  16. Gravatar of ssumner ssumner
    9. May 2019 at 09:34

    dtoh, The Fed has a dual mandate. If they hit their inflation target every year they’d be ignoring their dual mandate. They’d have a single mandate. They’d be violating the law. They’d have to arrest Powell and Yellen and Bernanke and throw them in jail.

    In fact, over the past 15 years, inflation has been above target roughly as often as below target.

    The actual problem is that during the Great Recession both inflation and employment were below target at the same time. That was bad. That’s not been true in the past few years.

    Ben , You said:

    “President Trump maybe a monkey but he has outsmarted the Fed.”

    If you just plan on making one moronic comment after another, then why bother commenting here? Do you agree that money was too easy in 2015? If so, say so. If not, then don’t make an utter fool of yourself trying to defend Trump.

    I have to say that when I read the comments of people defending Trump the logic is roughly at the level of Trump himself. Maybe I should not be surprised.

    You said:

    “Dtoh: I think you are correct. The U3 has become a worthless indicator.”

    Trump thinks you are wrong. I thought you claimed Trump was some sort of economic savant? Why does Trump claim the jobs market is so strong?

    Michael, You said:

    “It’s possible he wants the highest growth with low inflation.”

    No it isn’t. He favored tighter money in 2015. Trump knows nothing about economics.

  17. Gravatar of Christian List Christian List
    9. May 2019 at 11:25


    I hope all these strange TDS posts include a secret strategy that gets you on the Fed Board finally.

    A weird strategy that probably only you can understand, or probably not even you, which reminds me of Trump.

    Of course it all doesn’t matter if it works in the end.

    Unfortunately, I have my doubts that it will work.

    Let’s assume that you have a strategy (which I doubt, which reminds me of Trump again) but let’s just assume. What could the strategy be???

    Ah I got it: The Democrats will read your TDS posts and that will get you through the Senate.

    But why would Trump nominate you in the first place? Ah, now I get it: Trump is a severe dyslexic (no judgment at all, just a fact), who is basically unable to write and read at all. So he won’t read a single one of your posts. Oh yes, Scott, now I get it, I hope it works out for you – and all of us. The world needs you on the Fed Board. Just do it, man.

  18. Gravatar of Michael Sandifer Michael Sandifer
    9. May 2019 at 13:43


    Of course Trump doesn’t know anything about economics. He doesn’t seem to know about anything else either, but he wants praise and no complaints. He wants to be re-elected.

    I think you’re right and that markets are largely right in guessing he’ll cave on his stupid trade demands in time to avoid turbulence in 2020.

  19. Gravatar of Benjamin Cole Benjamin Cole
    9. May 2019 at 15:35


    I did not say that President Trump was an “economic savant.”

    In fact, I have said that Donald Trump is the vulgarian talk show host who became president of the United States and that he is a hypocrite (although to blame a politician for hypocrisy is to criticize fish for swimming).

    I said that Donald Trump has been right, the Fed should not raise interest rates, and the Fed has been wrong. The December rate hike by the Fed is extremely problematic and has been puzzled at by both David Beckworth and Tim Duy.

    Rather than agonizing about Trump, I think the orthodox macroeconomics profession needs a serious examination of the institutional compulsions of central banks and why so many mainstream economists for so many decades believe inflation is about to roar out of control.g

    Something is wrong when even a Donald Trump has better insights than the Fed.

  20. Gravatar of Benjamin Cole Benjamin Cole
    10. May 2019 at 01:47

    In the most meek, polite, humble, and deferential manner possible I will note today’s news:

    “But separate data showed inflation-adjusted real wages (in Japan) fell 2.5 percent in March from a year earlier, the biggest decline since 2015, casting doubt about the resilience of consumption.”

    Gadzooks…and Japan has 162 job openings for every job-hunter in Japan, according to official measures.

    Japan is not the US. But then, if so, are macroeconomic principles heavily dependent or colored by culture, or national attributes?

    In the US, will we see sustained demand for labor but real-wage deflation?

  21. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    10. May 2019 at 05:50

    As Ronald Reagan used to say, ‘It’s amazing what can be accomplished when no one cares who gets credit for it happening;

    First, nominal GDP is the most comprehensive measure of economic activity that the Federal Reserve can reliably influence. This is precisely because nominal GDP is a “nominal” variable—one that is measured in units of dollars. When Fed policy becomes too accommodative, excessive money growth causes the economy to “overheat,” that is, to grow in the short run at a rate that is faster than its long-run potential. Subsequently, inflation begins to rise. Thus, over both short and long horizons, inappropriately expansionary monetary policy generates an acceleration in nominal GDP growth. Conversely, when Fed policy is too restrictive, real economic growth slows in the short run and inflation falls with a lag. Inappropriately tight monetary policy thereby generates a decline in nominal GDP growth. In between these two extremes, stable nominal GDP growth signals that Fed policy is right on track: neither too easy nor too tight.

    Second, while nominal GDP captures the effects that monetary policy has on the economy over both short and long horizons, it does so without reference to the Phillips curve, which attempts to describe in more detail how changes in output and employment in the short run translate into changes in inflation in the long run. The problem with the Phillips curve is that it associates lower rates of unemployment with higher rates of inflation. Today, however, unemployment stands at a 50-year low yet inflation is falling, not rising. The Phillips curve might be useful for understanding other historical episodes, but presently, it is not serving as a good guide for evaluating Fed policy.


    Following a period of slower growth from 2011-16, nominal GDP has accelerated noticeably since 2017, returning to rates more typical of those experienced prior to the financial crisis. Over the three most recent quarters, in fact, nominal GDP growth appears to have stabilized at a 4.75% annual rate. If sustained, this figure is consistent with healthy, 2.75% growth in real GDP as inflation returns to the Fed’s 2% target.

    Importantly, nominal GDP growth shows no signs of faltering, as it would if the economy was about to fall into recession. Nor does it appear to be moving sharply higher, as it would if the Fed was losing control of inflation. Readings from this key indicator confirm that the U.S. economy continues to grow at a healthy rate, and that Fed policy remains supportive of a sustainable long-term expansion.

    The above is from Peter Ireland from Boston College, a member of the Shadow Open Market Committee. It would have been nice if he’d mentioned Scott’s name, but….

  22. Gravatar of ssumner ssumner
    10. May 2019 at 15:49

    Ben, If you are going to ignore my responses to your comments, why bother posting here? (I asked: “Do you agree that money was too easy in 2015?”)

    Patrick, Thanks, that has an interesting graph. Did you catch Zach Collins’s performance last night against Denver?

  23. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    10. May 2019 at 19:44

    Wow, Collins got to actually play? Usually he’s sitting with 5 fouls.

  24. Gravatar of Benjamin Cole Benjamin Cole
    10. May 2019 at 22:02

    Ben, If you are going to ignore my responses to your comments, why bother posting here? (I asked: “Do you agree that money was too easy in 2015?”) -Scott Sumner

    Okay, I will answer. No, I do not think the Fed was too easy in 2015, and maybe not even once since 1980 or so.

    Of course, Trump (and the entire GOP for that matter) wanted tighter money and balanced federal budgets when Obama is in office, and then switched en masse to looser money and “deficits don’t matter” when the GOP is handing out the loot.

    As you have said, one can try to be cynical enough to understand Washington, DC, but then it just gets worse and worse. Trump at least has the quality of being an honest hypocrite. No one really expects him to tell the truth. I have a soft sport for carnival barkers and agriculture lobbies, and people like Trump.

    But is Trump right lately on monetary policy? Yes, he has been right, the Fed is too tight. This speaks to a chronic compulsion at the Fed that needs to be addressed—the Fed is obsessed with even minute rates of inflation. They can’t stop. It is a fixation. A religion, or cult.

    Trump will pass the scene someday, but the Fed will be here, a menace to prosperity.

    BTW, Ray Dalio likes MMT. I know you hate MMT, but Dalio raises some good points.

    PS Why do I comment here? No one in rural Thailand wants to listen to my views on the Fed. Which is Scott Sumner’s fault—I found your blog when you started writing, and became obsessed with monetary policy. I wish I had read a blog on faux finishing or UFOs instead.

  25. Gravatar of E. Harding E. Harding
    11. May 2019 at 10:44

    Found a good summary of MMT: “Monetary policy is just there to be government revenue. Fiscal policy is there purely to manage inflation and employment”.

  26. Gravatar of ssumner ssumner
    12. May 2019 at 07:14

    Ben, Your logic is failing you. If Trump consistently lies about his view on monetary policy, then obviously he cannot be “right”, can he? You remind me of someone desperately trying to defend the accuracy of a broken clock, by claiming that it’s “correct” twice in any given 24 hour period.

    I suggest you stop trying to defend Trump, it’s a lost cause.

  27. Gravatar of Benjamin Cole Benjamin Cole
    13. May 2019 at 01:49


    Well, if you say so.

    I believe the Fed is too tight. Trump says he believes the Fed is too tight. I think I am not a broken clock. Actually, a broken clock says the same thing all the time, but Trump is marvelously plastic in views, even on a minute-by-minute basis. Trump is more like a clock spinning wildly and he is often right many times a day given the multitude of possible positions that can be read into his actions or statements.

    Worth noting:

    Financial Times-5 hours ago
    Mr Abe’s stimulus programme, dubbed “Abenomics”, has seen the BoJ purchase financial assets equal to 100 per cent of Japanese economic output, delivering


    But Japan maybe in deflation-recession land again.

    For Japan, would helicopter drops make sense? Is the sentiment that “helicopter drops could lead to inflation” really a a valid concern in Japan? How about a graduated program of helicopter drops, rising monthly until objectives are met?

  28. Gravatar of Michael Sandifer Michael Sandifer
    13. May 2019 at 12:06


    The S&P 500’s down about 4.5% since the latest tariff tantrum began. If you ran the Fed, would you loosen policy, with forward guidance at least?

    I would definitely at least issue a statement indicating that a rate cut is now more likely and/or will be sooner, if the economy doesn’t improve.

  29. Gravatar of ssumner ssumner
    14. May 2019 at 09:56

    Michael, If I ran the Fed I’d let markets set interest rates. If I was forced to set them, I’d adjust them every single day.

  30. Gravatar of ssumner ssumner
    14. May 2019 at 09:57

    Ben, You said:

    “Trump says he believes . . .”

    Oh come on, you can’t be that naive.

  31. Gravatar of Christian List Christian List
    14. May 2019 at 10:34

    I think Trump has some severe brain-based disabilities like dyslexia, and possibly ADHD, and maybe some others.

    Some people misunderstand these disabilities in the sense that he is an idiot who is unable to think at all. I think that might be a mistake.

  32. Gravatar of Michael Sandifer Michael Sandifer
    14. May 2019 at 12:15


    I agree it should be adjusted daily, at least. That’d smooth out some of the market volatility.

  33. Gravatar of Michael Sandifer Michael Sandifer
    14. May 2019 at 12:17

    Christian List,

    Trump has dementia. There’s a reason he only releases nonsensical medical data.

  34. Gravatar of Christian List Christian List
    14. May 2019 at 13:01


    Most of his symptoms (if not all) have been observable for decades, most likely since his youth. It’s not really new. I doubt he has dementia, and even if so, the doctors would not diagnose it, let alone his personal doctor. Furthermore, you would need special tests that Trump would not agree on.

    See the Trump presidency as the absolute highlight of political correctness: Anyone with severe brain disabilities can now become anything, even POTUS. The more brain disabilities the better.

    And if all else fails, he can have his blood examined and prove that he’s 1/1,024th Cherokee.

  35. Gravatar of Michael Sandifer Michael Sandifer
    14. May 2019 at 13:47

    Christian List,

    I disagree about Trump now versus the past. If you pull up old videos of him, he was much sharper with details and far more focused in the past.

    Yes, it takes specialized testing, but isn’t there a test primary care doctors perform that can lead them to refer for further testing?

  36. Gravatar of Matthew Waters Matthew Waters
    14. May 2019 at 15:31

    Going to interject this Esther George, Kansas City Fed’s chair, quote:

    “Lower interest rates might fuel asset price bubbles, create financial imbalances, and ultimately a recession,’’ George, who votes on monetary policy this year, said Tuesday to the Economic Club of Minnesota. “In current circumstances, with an unemployment rate well below its projected longer-run level, I see little reason to be concerned about inflation running a bit below its longer-run objective.”

    Fed’s George Warns Rate Cut Could Lead to Bubbles and Recession

    I thought VSPs and “dark age of Macroeconomics” were things of the past. But no, many still practice evidence-free, Medieval forms of Macro. The last three recessions were overwhelmingly low NGDP. Even the trough of the early 80’s recession was Volker briefly going too far the other way with reducing NGDP.

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