Yahoo reports that President Donald Trump thinks that the Federal Reserve has been “very, very destructive” by raising interest rates too quickly.
Trump has made a habit of criticizing the Federal Reserve and has urged policymakers at the Fed to lower the benchmark interest rate. However, this request was ignored as Trump recounted in an interview with CNBC where he said “they certainly didn’t listen to me because they made a big mistake. They raised interest rates far too fast.”
Trump claims that the Fed has put him in an unfavorable position in the trade war with China. In his view, Chinese president Xi Jinping has more control over his country’s central bank, which has helped to offset the impact of Trump’s tariffs on Chinese goods.
Trump later said, “We should be entitled to have a fair playing field, but even without a fair playing field — because our Fed is very, very destructive to us — even without a fair playing field, we’re winning, because the tariffs are putting us at a tremendous competitive advantage.”
Fed Chairman Jerome Powell has insisted that the central bank maintain its independent course and keep itself from being influenced by politics.
The Fed is set to announce its next policy decision next week. Last year, the Fed raised key policy rates four times. However, this year Powell has emphasized patience and is waiting to see how the American economy behaves in light of Trump’s trade war with China.
However, signs of the U.S. economy slowing down has made economists consider cutting interest rates to foster economic growth.
Trump highlighted Xi’s tremendous control over the Chinese economy, “Don’t forget, the head of the Fed in China is President Xi. He’s the president of China. He also is the head of the Fed. He can do whatever he wants.”
Central banking has become a double-edged sword so far.
Established in the 1910s close to the same time as the U.S. enacted the income tax, the Fed has the power to manipulate interest rates, and as a result, create boom and bust cycles that hurt the American economy.
Trump should exclusively focus on the use of tariffs to get China to change its policies. Tariffs can be used as a mechanism of soft power in order to tame countries that hurt U.S. interests. On the other hand, central banking policy is risky because of its ability to not only distort the American economy, but also increase inflation if too much money is being printed.
In the short-term, the U.S. should maintain a tight monetary policy. However, in the long-term, the Fed should ultimately be abolished and replaced with a free market money.
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