Kristian Rouz – GOP presidential nominee Donald Trump made a series of remarks on Monday regarding the Federal Reserve and its controversial monetary policies; base interest rates have been consistently kept low despite mounting evidence that this monetary environment has produced unhealthy developments in the economy. Trump said the Fed policies are being dictated by political pressure from the Obama administration, calling the regulator’s independence into question.
"Well, it's (the interest rate) staying at zero because she's obviously political and she's doing what Obama wants her to do," Trump said of Fed Chair Janet Yellen in a television interview with the CNBC program Squawk Box on Monday. Yellen should be “ashamed”, Trump said, as her actions have resulted in the creation of a “false stock market”, too overvalued and inflated due to the easy availability of credit, while the real economy is struggling and US manufacturing is in disarray.
"Any increase at all will be a very, very small increase because they want to keep the market up so Obama goes out and let the new guy… raise interest rates… and watch what happens in the stock market," Trump said.
Therefore, the situation with US monetary policies is very politicized, in Trump’s view, and it might make the next president look very unfavorable at the beginning of their term – unless the existing consensus is extended into the next presidency under special interests agreements.
"[Obama] wants to go out. He wants to play golf for the rest of this life. And he doesn't care what's going to happen after January," the GOP nominee said.
"The US economy would take off in a big way," David Woo of BofA said, as Trump is likely to unleash massive fiscal stimulus via tax cuts which would put the inefficient and corrupt government redistribution of wealth out of the equation. Trump’s intention to double the budget spending on infrastructure is another massive job generator, BofA observed.
Subsequently, in order to finance all the new obligations of the federal government, a series of new bond issues would ensue, resulting in lower value and higher yield, attracting investors and supporting the case for Fed hikes in base borrowing costs, pushing the economy closer to normalization, without an excessive and harmful reliance on artificial cash generated in a low-rate environment.
“In the last four years, we have had two instances of massive unwinding of the risk parity-trades," Woo said on Bloomberg TV on Monday, connecting Trump’s recent rise in popularity to the weakness in risk-parity trades, stemming from the uncertainty in the economy and the bleak outlook on foreign trade. ‘‘At this point, the risk to the risk-parity trade is just as big.”
Meanwhile, Trump also said that the low interest rates are hurting those Americans who have at least some money in their accounts.
"The ones who did it right — they saved their money [and] they cut down on their mortgages… and now they're practically getting zero interest on the money," Trump said.
Given that low interest rates benefit those who have debt and hit those who pursue sound personal finance strategies, an overhaul in policies is apparently long overdue, common sense might suggest, unless one assumes that being in debt is desirable.