Despite Mainstream Media Claims: No Doom and Gloom Behind Low Interest Rates

By Ken Blackwell Published on June 10, 2019

The stock market is bouncing back on the news that the Federal Reserve is considering an interest rate decrease. However, some commentators are spinning this as a sign of economic calamity.

“We are closely monitoring the implications of these developments for the U.S. economic outlook,” Federal Reserve Chairman Jerome Powell said Tuesday. “And, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective.”

Experts interpreted this to mean that the Fed may soon implement a rate cut. This after raising rates steadily over the entire course of Donald Trump’s presidency. President Trump has repeatedly encouraged such a move. He points out that his policies have secured the robust economic growth. They’ve secured the historically strong job market. They’ve also secured the low inflation that the Fed is tasked with supporting.

Why, then, is the media wallowing in foolish talk of coming economic ruin from “trade wars?”

The Doomsayers

These are the same people who insisted that President Trump’s election would tank the stock market. They then spent the first two years of his presidency predicting that a recession was right around the corner. But the economy soared to record-breaking heights. To these “experts,” any piece of economic news, no matter how encouraging, is an opportunity to claim that Donald Trump will ruin the economy.

The National Interest

The U.S. began a historic mission to establish a mutually beneficial trade relationship with China. This follows a generation of surrender by previous presidents. Similarly, Mexico is on notice that it must help us end the crisis created by mass illegal immigration from Central America. If they don’t, they will suffer penalties in the form of tariffs. Both measures are vital to the national interest of the U.S. Both are well worth the minimal and temporary difficulties that may come with tariffs.

All tough trade sanctions like the ones the administration is using with China and Mexico involve some reciprocal costs. It was in that context that Chairman Powell floated the idea of a rate cut.

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There is hardly any indication that the American economy cannot bear the temporary strain. The data continue to indicate that the full employment, robust wage gains, and steady GDP growth Americans have enjoyed over the last two years can and will continue.

All Chairman Powell was saying is that the Fed is prepared to do its part if the U.S. needs lower interest rates. They’d do this in order to keep the Trump economic boom going while these tense trade negotiations and tariff fights play out.

A Stable, Prosperous Economy

The only reason the Fed even has that ability to lower rates is because President Trump’s pro-growth policies created such a stable, prosperous economy. Because of that, Powell was able to impose a succession of rate hikes over the past two years.

For seven years the Fed was forced to hold interest rates near zero to avoid worsening the Great Recession. Since Donald Trump’s election, the central bank has raised rates eight separate times. The most recent raise was in December.

This is the textbook response to a period of strong economic growth. Reining in the boom helps to limit the severity of the certain bust that occurs at the other end of the business cycle.

Before the Trump boom, the Fed didn’t have the luxury of taking our economy off monetary life support. We continued to endure scant growth and high unemployment throughout the Obama years. If a trade dispute, stock market crash, or external supply shock had afflicted the American economy, we would have had no way to lessen those ill-effects through monetary policy.

Now, that option is back on the table. There’s no reason the Fed shouldn’t consider using it — if it needs to.

 

Ken Blackwell served as the mayor of Cincinnati, Ohio, the Ohio State Treasurer, and Ohio Secretary of State. He currently serves on the board of directors for Club for Growth and National Taxpayer Union.

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