Tweeting, Economic scapegoats and Fed independence

Harold Black, PhDBlog

Being old, social media mystifies me. I cannot fathom why anyone would be on Facebook providing information to hackers, thieves and predators about their family, activities and possessions. To me, Facebook “friends” are equivalent to be being friends with Harvey the 6-foot white rabbit. During my final years at the University my doctoral students persuaded me to join Twitter because the regulators I researched tweeted information days earlier than it appeared in their press releases. Still I shuddered at the thought of following someone and having someone following me. But I learned to hate Twitter because the news is now what someone thinks about an event rather than taking the trouble to reporting in depth the event itself.

Which brings me to our President, who is conducting a twitter war with the chairman of the Fed; the Chinese; our allies; our adversaires; judges; the print media; the broadcast media; sports teams; sports figures; Hollywood; the polls; his predecessor; big city mayors; California; and critics foreign, and domestic.

I feel slighted.

The President is blaming the Fed in the event that the economy slows when in fact he is the blame for our economic jitters. He wants a decrease in the Fed funds rate of 100 basis points. (A basis point is one hundred of a percent.) This could only mean that the President has an Ivy League education because he apparently believes that a decrease in interest rates will spur economic growth. Someone needs to point out the obvious. If that were true then Great Britain (central bank rate of 0.75%), the EU (0.00%) and Japan (-0.10%) would be booming. They are not.

Most economic studies do not find a strong relationship between changes in interest rates and changes in growth rates. Yet despite the evidence, the myth persists that lowering interest rates will spur economic growth. Someone should also tell him that those relatively high interest rates allow the Treasury to sell securities that finance his bloated Federal budget.

The President is seeking a scapegoat for the damage his tariffs are causing. Because the US economy is so large, any impact of tariffs will be micro rather than macro. Certain industries such as agriculture and industrial equipment will bear the brunt of the impact while the effect on the overall economy will be minimal. The US economy is strong because of robust consumer spending. The signs of weakness are in investment spending due to business uncertainty created by the President’s use of tariffs to bludgeon our adversaries, our allies and even our closest trading partners.

The Fed chairman has taken to answering the President by stating (I don’t know if he tweets) that there are limits to the Fed’s ability to supporting a policy of increasing tariffs. Translation: “It’s not my fault; it’s the President’s.” Nevertheless, the Fed has indicated that it will likely cut rates again soon, probably because it feels the pressure to do something. Given its penchant for slow movements, that cut will be 25 basis points. Such a cut will be ridiculed by the President as too little and criticized by the financial press as a kowtowing to the President. So, prepare yourself to another barrage of tweets from the President condemning the Fed and its chairman. Prepare yourself for criticisms that the Fed is bending to political pressures.

All this brings into focus the economic disaster that would result if the Fed policy were dictated by politicians. So be grateful for the Fed’s statutory independence.

Dr. Harold Black is professor emeritus at the University of Tennessee, Knoxville. This piece appeared in the USA TODAY NETWORK – TENNESSEE. Dr. Black can be reached