You say that all so much clearer than I could, and this is all how I feel. One slight quibble, though
Interest rates might be lower, which means we no longer have an independent Fed, and that is real bad.
If inflation goes higher, the Fed will lower interest rates, just as they did a few years ago. Trump wants them to do so right now, when inflation is still trending down.
The evidence today is that Trump’s ostensible allies, from tech moguls to CEOs to blue-collar workers, have been screaming that his imaginary world economic policy are hurting them. Then he backs down. “I never change my mind” is one of his Alex Jones level of continuing lies.
Not sure if this is paywalled, but the Washington Post ran White House eased China tariffs after warnings of harm to ‘Trump’s people’.
“It’s been completely insane,” Michael Strain, an economist at the American Enterprise Institute, a center-right think tank, said of Trump’s tariff policies. “When I step back from the euphoria over easing tariffs with China, what I see is the tariff rate is five times as high as when Trump took office. And we seem to have gotten nothing out of it at all.” …
The fallout also highlighted just how many obstacles there will be to implementing Trump’s tariff vision. In addition to public criticism from the International Longshore and Warehouse Union, the president faced defections from other players typically viewed as allies — struggling manufacturers, truckers with plummeting orders, construction firms fearing rising costs. CEOs from major companies made their complaints known to the White House.
That his policies have been - and maybe will continue to be - stopped by his closest backers is pure, delicious, American-made irony.
They raise interest rates in response to inflation, because raising rates slows the economy down, which brings inflation under control. However, if unemployment goes up, then they’ll lower interest rates to stimulate growth, and encourage more hiring.
Tariffs are expected to increase inflation and increase unemployment. So what do they do? Increase the money supply, by lowering interest rates, which will make inflation worse, but may create jobs; or raise interest rates to keep inflation low?
If the Fed is completely under Trump’s control, then they’ll lower interest rates regardless of conditions, because that makes it cheap to borrow money, which can be used to line oligarch’s pockets. And who cares about a bit of inflation if you’re stealing billions?
Tariffs can take a couple of years to reveal their full impact. That’s part of why we didn’t feel a spike in inflation until Biden took office, even though Trump started the ball rolling.
The news media makes its daily bread by dealing in sensationalism, presenting anything and everything that they can as the end of the world. I suspect that most people have adapted to this reality by reacting quickly to new news but then forgetting about the whole thing if nothing cataclysmic actually transpires within the next week or two.
Until prices actually start to go up, shelves empty, or unemployment starts to raise, I don’t expect much dramatic action past the initial drop.
FRB Delinquency Rates will probably drop on Friday, covering the state of things in the first quarter of calendar year 2025. Most likely, that won’t show anything dramatic yet but we’re starting to get into the zone where real number metrics could start to show the shift in direction of the real economy.
That ends in tears. So far, the Fed is holding strong. For you youngens, the Volker Fed (Paul Volker was Chair) had to address 20% interest rates and inflationary expectations built into the system. The Fed has been an inflation hawk ever since they got that beast under control.
If Trump is setting interest rates, look out inflation and hyper-inflation isn’t out of the ballpark. It is real bad if any government leader pressures the defacto global currency (USD) backed by the “full faith and credit” of the United States. Without the “full faith and credit” of the US gov, the greenback is simply wall paper. Any leader with such power will go for lower interest rates, no matter the longer term horrific impact that will have on inflation.
I think the thing is, right now all Trump’s stuff seems to be mostly hot air, without any actual economic impact so far. So there’s a lot of short-term turbulence, but not much in the way of large swings.
I suspect that there’s a certain element of anxious traders fueling the short term turbulence, and I agree with @Mijin that there are probably a fair number “buying the dip”, which is driving prices up higher on the rebound.
It all may change if some of these policies he’s pushing do actually take effect and we start seeing inflation rise, prices rise, availability of products going down, and the usual negative effects of dumb economic policy. That’s the sort of thing that causes large swings downward, and if they get large enough, they start having their own effect on the economy.
It’s kind of like being on an airplane; this is just normal bumps and turbulence, but if we start descending, that’s something different. And if we descend too fast, it starts to become harder to get out of the descent the faster you go.
The markets are up sharply today on the heels of a better-than-expected jobs report. Plus, I suppose, on the impending tax cuts from the Big Ugly Bill.
Inflation is slightly higher than last month, but well within normal parameters. Unemployment rate is down.
So in spite of what DJT says, there’s no reason to lower interest rates. The economy is humming along nicely.
We’ll see what happens when the pause on the tariffs ends next week and new deals are, or are not, reached. I expect more chaos, but I don’t really know shit.
One of the issues with Covid was that it killed at an awkward percentage where it wasn’t so deadly that there was clear and unambiguous evidence all around - rotting bodies in the street - that we were all in danger; while also not being so benign that you couldn’t tally up a million or so deaths, directly attributable.
My sense is that the economy follows a similar pattern. The usual metric is that it takes about a year for any government action to actually start to shift the economy. This is so slow that Presidents are often blamed or rewarded for things that their predecessor did, despite the economic analysts all saying that the attention is misattributed. 99.9% of everyone isn’t an economic analyst and isn’t doing any better analysis than looking at their debt payment.
Panic will happen when things actually start to go bad. Prior to that, you can shock people if they’re just hearing something for the first time - like that we’re going to impose financial sanctions on ourselves and remove 5-7% of our workforce, for no good reason. But, at the moment, everyone’s aware of what the government moves are so there’s not liable to be a panic over the restoration of any tariffs.
You just have to wait for the pudding to prove itself. If that doesn’t come until the mid-terms then so be it.