I caught numerous headlines last week about the President unhappy with the Fed raising rates (here is one from CNN). I am not going to get into whether the President can or cannot criticize the Fed, and I am actually not going to get into whether he should. The question we need to ask is whether or not he is correct about economic policy.
The Fed raising rates is a part of returning policy to a neutral stance where it is neither too much encouragement nor too much discouragement to the private sector. The President’s concern about the strength of the dollar is amusing given the implication that he would prefer a weak dollar policy. Also, if other countries were made to increase the value of their currency to where the President and his advisors think it should be then a policy of a weaker dollar would not be needed.
All this aside what truly mad me smile was a part of a tweet where the President said, “Debt coming due & we are raising rates – Really?” Of course, current Fed tightening does not raise the rates on outstanding debt at all. Really the only way you would be worried in this context is if you plan to roll over the debt with new borrowings, which will be at higher rates. This is of course exactly what is going to happen. The fiscal situation of the United States is not good. The New York Times has multiple articles directly on point. The deficit is rising faster than projected, due largely to the reduced business taxes from the tax cut and growth at a level insufficient to finance the cut. New spending such as the money proposed to be given to farmers facing losses due to the chaotic trade policy the United States now adopts is not even factored into these numbers yet.
The Fed is perhaps the lone consistent policy entity out there right now, and I am not even granting that they are engaged in the right policy. There is simply stability in viewpoint and approach. That does count for something right now.