While politicians whine and moan about wages that don’t keep up with inflation, they run a system that is designed to slow everything down once wages start to keep up with inflation.
The worry from Fed policy makers has been that the Trump economy has created too many jobs, too soon and thus wages have gone up too fast, too soon.
So they have tapped on the interest rate brakes pretty hard, despite the lack of evidence that overall inflation is near targets.
Donald Trump created 4.8 million jobs over the two years he has been president. And sure Barack Obama created 11 million jobs over 8 years. But like most presidents who start in a recession — with 10 percent unemployment — Obama just replaced a lot of jobs that were missing.
Trump on the other hand, with low unemployment, has been adding people who have been missing from the job market for ten years.
But what the two numbers say about our banking and political finance systems is really more important than the net jobs created.
There were seven federal funds rate increases under Trump in two years.
There were two increases in the rates in eight years under Obama.
That’s why Trump has been tweeting up the stock market and tweeting down a Federal Reserve rate hike.
The stock market generally waits, worries and wonders about two things each day:
- whether the economy is growing;
- whether the economy growing too fast.
There are a lot of ways to measure these things, and believe me, Wall Street uses them all in an effort to peer into that crystal ball to predict the future of price stock movement on a day-by-day and minute-by-minute basis.
The quite obvious worry today by Wall Street—and presidential candidates-- is that the economy is slowing down a bit because global trade is slowing. But really more consequential have been the Federal Reserve rate hikes that have been aimed at slowing wage growth.
A slower economy for a few quarters is not entirely a bad thing, even if you are not a Democrat presidential candidate rooting for recession. First, a slower economy is a temporary phenomenon that —as a general rule—results in lower equity prices—a plus for stock investors. When prices are much lower, as they were in December 2018, you should buy more.
People who buy more equities during times, like last December, when the market is on sale, do better overall.
And equities tend to perform well coming out of a recession.
Secondly, the biggest worry for any president is recession. There has been some relatively hot growth under Trump. That’s why there have also been some interest rate increases that were probably too rapid — leading some, including Trump — to worry about a recession.
Giving the economy time to cool down a bit right now might help keep wage inflation under control, even if it is hampering growth a bit.
Monetary policy in the modern world is hindered by this fundamental flaw. It’s generally used to fight inflation, but the only inflation the Federal Reserve policy-makers tend to care about is wage inflation.
And overall the economy and workers suffer.
The Fed wants a world, like Obama’s, with slow GDP expansion and no wage inflation. That’s why they are tweaking up interest rates. They want near-recessionary periods, like we had under Obama, to keep wages low.
We need to Tweet that down. And Tweet workers back up — just like Trump is doing.
John Ransom is politics and economics writer/editor with offices in Washington DC, Singapore. You can find him on Facebook @ here and here.
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