Should Trump Rejoice or Complain if Fed Cuts Rates by Half-Point?
Should Trump Complain or Rejoice if The Fed Cuts Rates by Half-Point?
According to current speculations, there is only a 30% chance that the Federal Reserve will cut rates by half a point on September 18. However, it is believed that these odds are underestimated, as the next Consumer Price Index (CPI) report is expected to be in favor of the Federal Reserve. The question that remains is how President Trump should react if such a cut were to take place.
When Will We Know?
It is not until the CPI report is released on Wednesday, September 11, that we will have a clearer picture. The Federal Reserve is set to meet a week later. It is predicted that the combination of the recent jobs report and the CPI report will allow the Federal Reserve to cut by 50 basis points if it so chooses.
Grading the Possible Reactions
There are varying opinions on how Trump should react. Some believe he should rejoice, others think he should complain, while some argue for a neutral stance or a combination of both reactions. Here's a breakdown of the grading for each response, depending on the reasoning behind it:
- Rejoice: B+ minimum to A+
- Complain: F to C
- Neither: F to C
- Both: B- minimum to A+
Discussion on Rejoicing
Those advocating for rejoicing argue that Trump should privately celebrate. A declining economy could benefit Trump. Those who reject both rejoicing and complaining, solely because they believe complaining is counterproductive, receive an A. The impact of complaining depends on the manner and intensity with which Trump does it. It could potentially have a negative effect. Full credit goes to those who fully understand these nuances.
Discussion on Both Rejoicing and Complaining
Those who suggest both rejoicing and complaining for the right reasons receive an A. The right reason being that Trump should privately rejoice at an economy deteriorating enough to warrant a significant cut by the Federal Reserve. Those who believe that complaining will help, if done correctly, receive an A+. However, those who think complaining is the more important aspect receive a B-.
Upon reflection, there are some issues with both rejoicing and complaining. Firstly, Trump is likely to overreact. Secondly, with the rapid deterioration of the economy, Trump, if re-elected, will be urging the Federal Reserve to cut rates. So why should he complain now and then plead for cuts later?
Discussion on Complaining
Those who suggest complaining fail to acknowledge that Trump should be privately pleased about the economic realities. A declining economy could benefit Trump. Those who insist on complaining seem to have missed or ignored this key idea.
Discussion on Neither Rejoicing nor Complaining
The stance of neither rejoicing nor complaining can be somewhat confusing. However, a deteriorating economy could benefit Trump, so at the very least, he should be privately pleased.
Interesting Exchange
It is agreed that the Federal Reserve's actions will not impact the election as it's too late. It is also agreed that Trump will complain even if the Federal Reserve only cuts by a quarter point. However, the reason behind a 50 point cut by the Federal Reserve does matter.
The Federal Reserve is very conscious of the politics. If it cuts by 50 points, it is likely because the underlying economic fundamentals are poor and deteriorating. The Federal Reserve is well aware of the potential for complaints from both sides. If it only cuts 25 basis points and the economy crumbles, Democrats will be complaining.
Powell is in a no-win situation. It takes time for rate cuts to work, but time has run out. It's too late for cuts to save the economy. Therefore, Trump should welcome a half-point cut (privately). A half-point cut is almost an admission that a recession has started. It may even spook the market, further benefiting Trump.
Bottom Line
As the economy continues to show signs of recession, the actions of the Federal Reserve and the reactions of President Trump will be under scrutiny. It's a complex situation with no clear winning strategy for any party involved. What are your thoughts on this matter? Do you agree or disagree with these perspectives? Share this article with your friends and let's get a conversation going. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.
