The Federal Reserve seems likely to continue raising rates into the foreseeable future making it a likely candidate for the ire of President Trump. The irony is that the President’s own trade policies likely make the Fed take actions to increase rates. 

Fed Goals

While it is popular to talk about the Fed’s dual mandate, and the law is written that way the Fed really prioritizes price stability over everything and anything else. This is not so much a policy entity going rogue as much as it is recognizing their limitations. The Fed can reasonably impact price levels but other goals are likely too indirect or uncertain for Fed policy to deliberately target, except in very extreme, almost over the top situations, like rescuing a collapsing international financial system. 

A larger point is that the Fed actually furthers most of its other goals by creating a stable price environment, specifically low, stable inflation. Employment increases are more likely in stable environments. There is no mandate for stock market performance in the Fed policy portfolio, despite what many think. 

Trade Outcomes

The current course of trade policy has one pretty sure outcome, higher prices, that is, higher inflation. Tariffs are going to raise the price of foreign made goods in the U.S. Is it the case that this will create more domestic production of goods? Maybe. The long run aspects of this type of decision are far from clear. The way in which more domestic production becomes feasible is through higher prices. The less efficient or higher cost domestic producer is competitive only because of the tariffs pushing foreign prices higher. 

Implications for North Dakota

North Dakota has quite a bit to lose in this situation. North Dakota producers, especially those on in agriculture, are getting shut out of Chinese markets as a result of the back and forth tariff escalation. At the same time North Dakota producers are going to be experiencing higher prices for many of the goods they buy. Less revenue coming into state producers and higher prices for goods is not generally thought of as a positive. 

These events also have the unfortunate circumstance of likely eating into any higher tax returns people expect to receive as a result of the tax policy changes of the last year. In all it is a set of circumstances that, while unresolved, create a negative outlook for many in North Dakota, and the U.S. as a whole, and at the very least increase the level of uncertainty in the economy which is also a problem.