- RAWSTORY.COM - Raw Story - 23/Jul 19:28

Trump’s 'wild' tantrum about to end in 'disaster': analyst

As President Donald Trump continues to muse over firing Federal Reserve Chair Jerome Powell over refusing to cut interest rates to his liking, an analysis by The Atlantic staff writer Roge Karma found that were Trump to ultimately replace Powell and get rates cut to his liking, he could very well kick off a wave of higher real-world interest rates, and soaring prices.“Many experts, including former Fed chairs, believe that cutting rates simply because the president demands it could have an even more profound consequence: it would tell the world that the U.S. central bank can no longer be trusted to credibly manage the money supply going forward,” Karma wrote in an analysis piece published Wednesday in The Atlantic. “Investors would ‘get really nervous about holding U.S. Treasuries,’ the economist Jason Furman told me, and demand a far higher return for buying them to make up for the higher risk – which would, perversely, drive interest rates higher, not lower.”Trump has dubbed the current Fed chair “too late Powell” and a “numbskull,” as well as a partisan actor, an allegation he levies due to Powell cutting interest rates under former President Joe Biden’s presidency, but not his. Trump went as far as sharing with House Republicans a draft letter announcing Powell’s termination, but has since said that it would be “highly unlikely” for him to fire Powell.Trump’s administration has since launched an investigation into Powell for fraud over expensive renovations to the central bank headquarters in Washington, D.C., an investigation that critics have characterized as a tool to give the president the legal pretext to fire Powell at a time of his choosing.Karma argues that arbitrary slashing interest rates, currently at around 4.33%, to Trump’s goal of 1% could lead to a loss of credibility worldwide, investor panic, and ultimately, higher borrowing costs, with lenders and investors demanding higher returns on U.S. debt out of fear of instability. Slashing interest rates could also lead to skyrocketing inflation, particularly in the current low unemployment environment, with Karma slamming what he described as Trump’s “simple mental model of monetary policy.”“If the president were serious about lowering the cost of borrowing for families and businesses, he would be wise to leave Powell alone and simply stop enacting wildly irresponsible policies,” Karma wrote. “Trump tends to prefer a different approach to people and institutions refusing to do his bidding: force them into submission. But America’s central bank isn’t like most other institutions; it is the central node in a highly complex chain of interactions that undergirds the entire global economy. Even one seemingly small error or misstep can result in disaster.”