ok first semantics. the Fed could do that, but it would be unwise.
the Fed has two mandates: keep employment high, and keep inflation low. the main tool they have to work with is they set the prime rate.
here's how it works. when inflation is too high, say anything above about 2.5%, the Fed's response is to raise the prime rate. this essentially cuts down the money supply. tightening the money supply slams the breaks on inflation.
let's take the opposite scenario. when the country goes into recession, like what happened in 2007 and 2008, nobody is buying anything, people are losing their jobs, no one is starting new businesses, etc.
the Fed's response here is the opposite of the above: they lower the prime rate. this raises the money supply, encouraging spending and investments to get the economy "unstuck." businesses start to hire, consumers start to spend $, and GDP goes up.
before Trump tried his "little experiment," we were doing pretty well. inflation finally stabilized at about 2.2%, the jobs' reports were robust, and everything was clicking.
in such an environment, it might not be a necessity, but at least it would be safe to lower the prime. such a move could be very helpful, for example, in getting the housing market "unstuck."
now Trump comes along with his tariffs. suddenly, all those container ships from China just go idle. that affects U.S. port workers, who get furloughed. cars with tariffs sit on dealer lots. salesmen get laid off, and suddenly you have the makings of a recession. so the Fed should lower the prime, right?
but, meanwhile, what effect do those tariffs have on prices? they go up. that's the point of the tariffs, to force people to buy American goods. but America doesn't make a lot of those goods. where's the American textile industry? there isn't one. where's the American steel industry? there isn't one. so people have no choice to pony up for foreign goods, or go without. when they pony up, that's inflation. so the Fed should raise the prime, right?
this disastrous scenario that Trump created is called stagflation. it's the worst of all worlds.
so now the Fed is between a rock and a hard place. so what do they do? stand pat and hope Trump comes to his senses.
this experiment is doomed to fail because Trump has no idea what he's doing. even if he had simply consulted with pro-tariff economists, he might have been able to figure out something workable.
Trump is right about China. but if you want to beat China, you gotta have a workable plan. instead, Trump is just trying different random actions and hoping for the best. no budding entrepeneur is going to build a steel factory or a textile factory in these uncertain conditions. instead, they'll just sit on the sidelines and wait for more certainty.
one more thing. where's the labor force for all these future American factories? Trump is deporting them. you think Americans are going to work in a textile factory? just naw..
see how all that works?
Quote:
Originally Posted by The_Waco_Kid
you keep saying that. why exactly can't the Fed reduce the interest rate if inflation is high because of tariffs?
i'll wait
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Trump planning to fire FED chairman Powell ?
