Trump says the Fed is withholding the necessary “jet fuel” the economy needs for take-off (he even blames Powell directly). But is this personal, political, or just policy? Here’s what’s at stake, and how we should be preparing for take-off…
By Peter Reagan
Everyone wants an economy that isn’t just idling down the runway. And no one wants an economy in a nosedive (which is really scary if you consider we’re passengers on the plane in that metaphor).
No, what people want is an economy that not only takes off but that reaches a good safe altitude, then hums along before rising to cruising altitude for the long haul.
Now, aside from all of that being true, you may be wondering why I’m leaning so heavily on the airplane metaphor.
Honestly, the answer is…
Trump wants a delivery of economic “rocket fuel”
In all truthfulness, he really did use that type of metaphor.recently in a discussion about the economy.
Specifically, he was talking about how unhappy he is with his efforts to get the Federal Reserve to line up with his economic plans.
Before we get to Trump’s specific comments, let’s step back and go over what the Fed did recently that he is unhappy with.
Or, actually, what they didn’t do. John Melloy writes,
The Fed on Wednesday voted to keep its benchmark interest rate between 4.25% and 4.5%, where it’s kept the range in the three meetings this year since last cutting in December.
Also, Derek Sauls with Forbes notes,
The Fed is in a “good place to wait and see” before moving on interest rates, [Federal Reserve Chairman Jerome] Powell said Wednesday. “We don’t think we need to be in a hurry. We think we can be patient.”
As I mentioned earlier, Trump was not too happy with Powell about this. Trump said, ″’Everybody’s cutting but him,” and went on to say:
“Now, if the chairman of the Fed… if he would lower interest rates like China did, like I think UK did, but like numerous other countries have done, it would be, it’s like jet fuel… but he doesn’t want to do it,” Trump told reporters. “I think he doesn’t want to do it. Probably he’s not, he’s not in love with me. I think that’s, it’s sort of a crazy reason, but that’s the way life is.”
So why did Trump make it personal?
Of course, that is how Trump’s public image is: everything is personal, both in how he takes things and how he dishes out what he thinks about other people and their actions.
I’ll leave it to you to decide if you think that he really is that bombastic or if it is a carefully crafted public image (he did work in the media side of professional wrestling for a number of years, after all, where calling people out and making threats of one sort or another are commonplace).
What is clear, though, is that Trump really does want interest rates lower because he believes that will help to improve the American economy.
And to be fair to Trump, there is a logic to that thinking that many in large corporations and in Washington, D.C. agree with. Sauls writes,
Higher [interest] rates tend to slow economic growth as companies tighten spending in response to elevated borrowing costs’ impact on bottom lines, while lower rates typically stimulate the economy as companies loosen their belt and spend more freely thanks to cheaper loans.
It’s not just theory that backs up this thinking.
In an economy driven by debt (meaning companies and consumers borrowing money to buy things and get things done), cutting interest rates means that borrowing money is cheaper and that both companies and consumers can afford to spend more money.
Right?
And, to give Powell the benefit of the doubt, concerns over the long term may be what is keeping him from lowering interest rates even though he almost certainly thinks that it would help the economy to grow. Again, from Sauls:
The Fed operates on a dual mandate system to keep inflation manageable and employment robust. The inflation mandate has largely taken precedence over the last four years after inflation roared to a four-decade high in 2022. Inflation has moderated slowly since then, and the Fed’s preferred measure of price changes came in at a four-year low of 2.8% in March, though that’s still well above the central bank’s 2% goal, and economists widely expect tariffs will lead to a sizable increase in consumer prices.
So, the Fed tries to both keep employment up and inflation down, and those two forces can be at odds with each other. While economic growth does increase employment, excessive economic activity goes hand-in-hand with inflation. Or an economy that’s “overheating,” in Fed speak.
Overheating – just like a jet that flies too far, too fast – burning up too much fuel – is prone to overheat.
And we all remember the inflation over the last few years. No one wants to go back to that! Preventing an inflation spike could be Powell’s current focus.
Going back to Trump’s earlier metaphor, while you can think of cutting interest rates as jet fuel for the economy, too much growth too quickly can cause a disaster. To go back to our airplane analogy – you need enough fuel to get you to your destination at a reasonable pace.
Fly too far, too fast? Your engines will run less efficiently. Then they’ll overheat. In the worst circumstances, they explode. Pilots call that “an abrupt and unscheduled landing.”
Jet fuel can be good, but, like many good things, too much is dangerous.
Too much of that jet fuel gives us inflation (like we’re still dealing with) and it just keeps burning and burning up our purchasing power. Until it’s starved of fuel.
So are we looking at a take-off? Or a tailspin…?
Your golden parachute
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