Politics
Former President Donald Trump has been called many names but what he was first and remains is a real estate developer from Queens with a sense of humor and style of elocution that translates poorly on this side of the East River.
Part of Mr. Trump’s style is his rudeness that delights in making fun of others’ insecurities. Former Rolling Stone reporter Matt Taibbi describes it brilliantly in his recent piece, Donald Trump, America’s Comic.
Some of it is for fun. Just ask Sen. Elizabeth Warren. A lot of it is strategic. Just ask Federal Reserve Chairman, Jerome Powell.
Late last week, Mr. Trump declared to Fox Business that Mr. Powell would do something to help the Democrats. Given the short list of somethings the Federal Reserve can do, Mr. Trump’s comment implied Mr. Powell would announce a politically driven interest rate cut in the months ahead.
Running through most of Mr. Powell’s recent service as Fed Chairman has been his commitment to an independent central bank. “Independence” might be a relative term, but Mr. Powell has made no secret of his disdain for calls from the White House or reporters’ suggestions that he chastise Congress for spending too much money.
Threats to the independence of the Federal Reserve or Mr. Powell personally is the soft spot at which Mr. Trump has taken aim. If the Federal Reserve cuts rates at any point this summer, particularly after the party conventions, Mr. Trump will recall loudly the missteps of Nixon-era Federal Reserve Chairman Arthur Burns.
Economic destruction, wrought by higher-than-necessary real interest rates, while President Biden sits in the White House is nothing but good for Mr. Trump’s political fortunes.
He knows it and so does Mr. Powell.
Policy
Helping Mr. Powell out of this little quandary is the always-reliable Treasury Secretary Janet Yellen. Secretary Yellen knows from her years as President Barack Obama's central banker that printing money out back can mask a portion of the economic duress descending on America – at least on paper.
CMS released the 2025 Medicare Advantage advanced rate notice last week. The initial proposal is a 3.7% rate increase, thus heading off a repeat of Republicans’ 2023 claims that the White House was “cutting Medicare.”
Well and over-funded MCOs mean reasonably well-paid providers, which reduces the risk of job losses. The White House has other levers to pull, as we have noted, like Medicaid enrollment, as well as the non-health care fiscal stimulus of the Chips Act and the Inflation Reduction Act.
There will be a price paid, as Americans learned when the soon forgotten Arthur Burns departed, leaving the intimidating Federal Reserve Chairman Paul Volker to spend nearly a decade cleaning up the mess.
Power
The non-ironic result of the stealth fiscal stimulus encouraged by the Treasury Department is the cover it provides Mr. Powell to maintain a high for longer interest rate environment, thus preserving the Federal Reserve’s independence.
You see, everything is fine. Look at that employment number! No need to cut rates!
Of course, these are mere headlines. For the vast majority of the country untouched by the limited reach of fiscal stimulus, higher cost of capital is reaching its desired target.
Something could break, providing Mr. Powell an escape route from the Borsch Belt ridicule of Mr. Trump. At that point, Mr. Trump has Plan B which is to shed himself of Mr. Powell and go searching for his own Arthur Burns.
