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November 15, 2018

Trump rightly fears the Fed will smother the economy

Liz Peek Articles

Federal Reserve Chairman Jerome Powell spoke in Dallas recently, and for the first time, seemed to suggest some flexibility in the speed with which the central bank is raising interest rates.

In his remarks, he linked rate hikes with some signs of slowing growth; some have interpreted his comments as opening the door to a slightly less aggressive “normalization” path.

It’s about time. Many have questioned why the Federal Reserve is in such a hurry to raise rates. Inflation is tame and U.S. growth has recovered to roughly the average achieved over the past 70 years.

The expansion is providing needed (modest) wage increases and also helping to prop up sagging economies in the EU and Japan. Investors have shown their disapproval of rapidly rising rates, battering stocks in recent weeks.

President Trump has voiced his disapproval, too, and that could be a problem.

For several weeks, Trump has lambasted the Fed, calling its actions “crazy,” “loco” and “ridiculous.” Lest anyone be confused, he is not happy with Fed Chairman Jay Powell, under whose leadership the board has lifted interest rates three times this year.

A fourth hike is expected in December, and three or more next year. The Fed’s rate is now 2.0-2.25-percent range, the highest level since October 2008, on the eve of the financial collapse.

On cue, critics of the president have accused him of trying to influence the decision-making of the Federal Reserve and of undermining its independence.

Just recently, Senators Jeff Flake (R-Ariz.) and Chris Coons (D-Del.) sent a letter to the president telling him to knock off his “ill-advised commentary,” saying that his public rebukes are “unconstructive and dangerous.”

Flake and Coons are not alone. Christine Lagarde, head of the International Monetary Fund, jumped in to defend Powell, which was rich considering that when the Fed started hiking rates in 2015, she was quick to warn that the “spillover effect” from Fed tightening could lead to market instability, especially in emerging markets.

Some fear that the president’s hectoring may be putting Fed Chair Jay Powell in an awkward position. If he doesn’t follow through with a much-anticipated fourth rate hike in December, some will criticize him for kowtowing to Trump.

The Fed will also come under scrutiny if it is seen to be bailing out the harm done by Trump’s trade battles. But surely Powell will have the gumption to do what is right. If our growth is in jeopardy, the Fed must back off.

The Fed is nervous that growth of better than 3 percent will result in soaring wages and a spike in inflation. But officials have been puzzled these past couple of years that wage growth has increased only modestly, even as unemployment plummeted.

The presumption that our economy is on the verge of overheating is a vestige of overarching pessimism about what could be “sustainable” growth; call it the “Larry Summers effect.”

Summers, the former director of the National Economic Council under President Obama, has famously suggested that the U.S. faces “secular stagnation,”  a position that seeks to excuse the underwhelming economic performance of recent years.

The Fed is trying to raise interest costs just enough to prevent runaway inflation but not enough to throw the economy into recession, a feat that, as a piece in Bloomberg pointed out, “the central bank has accomplished only once in its 104-year history.” Are we confident this will be the second time?

With the U.S. being the only major economy trying to raise rates to more “normal” levels, the dollar has moved higher, creating credit issues in other countries and trimming earnings prospects for U.S. multinationals.

Prices being charged by U.S. exporters are rising, making it more difficult for them to compete, while here at home, rising rates have created a significant drag on housing. Also, analysts are citing rising debt costs as a factor limiting earnings growth next year.

There has been widespread consensus that interest rates should move gradually higher, in part because of fears that come the next recession, the Fed will have no arrows in its quiver if rates still hover at near-zero levels.

Also, there is little doubt that inflation, long dormant, has perked up. While raising rates may make sense, it is the pace of the hikes and the ultimate target that are controversial.

Consider the inflation news. The most recent headline from Marketwatch sounded alarming, but that number for October turns out to have been boosted by higher gasoline costs, which are now tumbling.

While the Consumer Price Index in October rose 0.3 percent, the most since January, the annualized gain in the “core” rate actually fell to 2.1 percent from 2.2 percent in September, the smallest rise since April.

For the 12 months ending Sep. 30, the “all items” index rose 2.3 percent, well within the Fed’s preferred target zone. The Personal Consumption Expenditures Index, the Fed’s preferred measure, was ahead 1.99 percent year-over-year in September, in line with the Fed’s target.

In the coming few months, the drop in oil prices will continue to help keep consumer prices under control, as will the strong dollar. Despite tariffs imposed by the White House, Americans’ appetite for foreign-made goods has led to sharply higher imports.

In September, goods imports totaled $217 billion, which was both a record and an 11-percent increase from the year before. The cost of those goods is being held in check by the strong dollar.

For the 12 months ending September, the price of imports, excluding fuel, rose only 0.7 percent. The dollar over that period strengthened 6 percent against a basket of currencies representing our main trading partners.

Overall, inflation is rising, but is still tame.

The economic acceleration of the past two years has stemmed from tax cuts and a loosening of Obama’s regulatory vise, but it has depended also on optimism. Consumer and business sentiment has soared, leading to higher spending, hiring and investment.

An overly aggressive Fed could quench that ebullience. The most recent reads of small business and consumer sentiment suggest that a retreat is already underway. Let’s hope Chairman Powell is paying attention.

 

Published on The Hill

Fox Business: Democrats, Republicans set to clash over Trump’s tax law Democrats are in disarray. Does that spell trouble for 2020?

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Liz Peek

4 months ago

Liz Peek

Remember how certain Dems were that anti-Trump fever would annihilate GOP candidates in the midterms? here we are, with the House up for grabs and most critical races too close to call. www.foxnews.com/opinion/liz-peek-midterm-election-visions-of-a-blue-wave-still-fill-pelosis-head-… … See MoreSee Less

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Liz Peek: Midterm election visions of a Blue Wave still fill Pelosi’s head but Trump is upending expectations

foxnews.com

President Trump will not fix all our problems, but he has a better shot than most, because he approaches the country’s and the world’s problems with an untutored eye.

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Well this sure didn’t age well did it? Kind of like your recent article about disarray in the democratic party. Appears the GOP has lost grip on reality. Kind of like their grip on Orange county where the GOP was completely swept!!!! Only reason they kept the Senate is because so few seats were up for election. Keep spinning that top lady

I just finished reading Liz’s article from Fox News Channel titled " GOP’s 2020 campaign will put Dem extremism on trial , yessss , I did , it was Brilliant ….

Liz, baby or fetus? Can’t work it both ways. Thank your lucky stars your parents didn’t dehumanize you by labeling you a "fetus" as as pretext to correct an inconvenient mistake.

"Just days after the New York law went into effect, a man stabbed a woman in New York, killing her and her unborn fetus. Because of the recently signed bill, the prosecutor said he could charge the assailant with murdering the woman, but not the baby. That is the horrible outcome of a horrible bill, which Democrats will have to defend in the months to come."

Long time ago, but still wondering how exactly you lost your mind? Fox must be paying you a lot! After 2020 you’re going to need some new shtick.

Let’s stay the course.

WELL , Well , well , what have we here but a few pesky lefty Democrat males in here pestering one of America’s finest journalist , yessss , Liz Peeks insights are always Brilliant , I mean , even Babe Ruth struck out more at bat than he hit home runs , though it was his home runs we all remember …. respectfully

Your article on Fox News hit the nail on the head. I have soured on all the investigations on Trump. Let’s get something done that matters. Turn your sights back to our country and our people and our military and ICE!

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Liz Peek

4 months ago

Liz Peek

Chuck Schumer dismisses the importance of 250,000 people getting a job. What are Dems offering middle class Americans? nothing….
thehill.com/opinion/campaign/414910-the-numbers-dont-lie-working-americans-are-better-off-under-gop
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The numbers don’t lie: Working Americans are better off under GOP

thehill.com

Not since the year 2000 have people been so cheery.

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Cryin’ Chuck!

America is winning !

Democrats like victims not winners.

Liz Peek

6 months ago

Liz Peek

Imagine: @Google won’t help US military w #AI but ready to boost suppression of free speech in #China … See MoreSee Less

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Cannot find a place to send a message to Cavuto. Will you pass along a message telling him that Gasperino is a true downer. Every time he is on any Fox show, I start feeling depressed.

Unconscionable!!!

Western Civilization is under a coordinated attack from every other belief system in the world.

Another appearance on the Fox propaganda channel filled with rabidly partisan attacks. And next time you want to pretend our Russian hooker piss loving POTUS didn’t collude, remember the Trump Tower meeting with Kremlin Reps ;). May Allah remove your ignorance and toss in a splash of objectivity sweetie

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Liz Peek@lizpeek·

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Please join us on @BullsBearsFBN – about to talk @AOC!

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Jeanine Pirro@JudgeJeanine·

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So crony capitalism hasn’t escaped AOC – her boyfriend reaps benefits from PAC with whom she’s aligned.

https://t.co/MNCpiF42zV

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Charlie Kirk@charliekirk11·

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Did you know:

Russia donated over $145,000,000 to the Clinton Foundation

Hillary Clinton sold 20% America’s Uranium to Vladimir Putin

And Robert Mueller has spent 2 years and millions of dollars investigating Donald Trump for colluding with Russia during the 2016 election?

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Ronna McDaniel@GOPChairwoman·

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Democrats & many in the media have accused @realDonaldTrump of lying about criminals hiding in caravans.

But just yesterday, we learned that at least 25 MS-13 gang members were found in a caravan right over the border.

Democrats need to get serious about illegal immigration.

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Tonight joining @DavidAsmanfox on @BullsBearsFBN we have @JonasFerris @zacharykarabell @lizpeek @MBlockTSA! Tune in at 5 PM ET to follow all the action!

Tonight joining @DavidAsmanfox on @BullsBearsFBN we have @JonasFerris @zacharykarabell @lizpeek @MBlockTSA! Tune in at 5 PM ET to follow all the action!

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