July 5, 2019

July 5, 2019

Trump’s Clumsy Dance With the Federal Reserve. It’s hilarious to watch the three-way dance between the economy, the stock market, and Trump’s hapless effort to fill two open seats on the Federal Reserve. Or, it would be hilarious if the stakes were not so high.

Alert readers will recall that Trump has been badgering the Fed to push interest rates even lower, despite the fact that they are near historic lows, as is the unemployment rate. The stock market, which behaves perversely relative to the real economy, has been hitting new highs, because of the expectation that the economy will soften, giving the central bank a rationale for cutting rates.

But, oops, the June jobs report, released this morning, showed a healthy gain of 224,000 jobs, which means that the Fed is less likely to cut rates, and of course the stock market tanked.

Meanwhile, Trump has turned to two nominees to fill the open seats, after his two earlier nominees, Stephen Moore and Herman Cain, suffered humiliating rejections by Senate Republicans, as crackpots. The two new nominees are Christopher Waller of the St. Louis Fed, a supporter of low interest rates, and Judy Shelton. 

Of these, Shelton is not just a crackpot but a shameless opportunist. A chum of White House economist Larry Kudlow who served on the Trump transition team, Shelton is best known as an advocate of a return to the gold standard. But she has been born again as a proponent of very cheap money.

The two positions are completely contradictory. The gold standard is the epitome of tight money. Nations went off the gold standard in the 20th century because it artificially constrained the money supply and prevented the economy from reaching its potential.

The combination of crackpot, self-contradictor, and opportunist makes Shelton a perfect fit with the Trump White House. But she is not likely to be confirmed. Pro-Wall Street Republicans may also be opportunist and willing to make a pact with the devil (Trump) on most issues, but they don't like crackpots on the Fed.

So the Fed, unlike the Supreme Court, continues to survive as island of semi-autonomy from Trump. He can tweet until he is blue in the face, but that’s not likely to change soon.