Fed funds target rate, ICE sit-ins and the new GDP numbers

Fed funds target rate, ICE sit-ins and the new GDP numbers

The Fed funds rate

Ok I was wrong. I thought the Fed would flip off the president by lowering the Fed funds target rate by 25 basis point. Instead, the Fed’s Open Market Committee stood defiant and voted to keep the rate unchanged. Boy I bet Trump is having a cow. However, this time the vote was not unanimous. Trump’s appointees not named Powell dissented. One, Christopher Waller had gone public advocating a 25 basis point drop which was not a surprise since Waller would like to be appointed the next Fed chairman. The other dissent was Michelle Bowman which was a bit of a surprise since she has always supported tighter monetary policy while resisting rate cuts. Since Trump has already appointed her to be vice chair for regulation, one wonders why the change of heart. Could she, too, want to be named Fed chair? Regardless, this is a bad sign. The Fed board now looks partisan. But at least keep in mind that when Harry Truman appointed William McChesney Martin chair and expected the Fed to accommodate him, once installed Martin went his own way causing Truman to regret his appointment. It will be interesting to see if the next Fed chair goes his or her own way once nominated.

The Baltimore sit-in 

Speaking of nominations, both Maryland senators are on the Senate Banking Committee which vets the Fed nominees. Both were involved in a sit in at an ICE facility in Baltimore. Pardon me but I don’t understand these stunts. The democrats must have polling that tells them to go make fools out of themselves. Remember the one where the mayor of Newark was arrested and a congresswoman was indicted for interfering with law enforcement?  Then there was the one in Los Angeles where a bunch of democrat congressmen showed up at an ICE facility and were denied entry. One whined “The Trump Administration blocked my colleagues and me from conducting our congressional oversight duties into the reported abuses and neglect that is taking place at this facility.”

At all these facilities, the democrats are reading from the same script. In Baltimore, one of the congressmen said “We were not allowed entry, so we had to stand outside, bang on the door, and ultimately sit in front of the door. “Finally, a director came out and explained to us that she had been given direction not to allow anyone, member of the House, Senate, or anyone into the facility.” So the dems show up and are denied entry and stage a sit-in. All the while, the deportation czar Tom Homan issued a statement saying that the dems are protecting felons, rapists, murderers and other bad types – like Abrego Garcia? Maryland’s Chris Van Hollen embarrassed himself with that one and not surprisingly was one of those sitting in at the Baltimore facility. Of Van Hollen, Homan said “He’s an embarrassment to the position he holds.” Homan further said that Van Hollen did not hold demonstrations regarding the “record numbers” of women and children being sex trafficked, fentanyl deaths or terrorists crossing the border.” Of course not. It will be interesting to see what questions he and fellow sit-iner Angela Alsobrooks ask at the Fed chair’s confirmation hearing.

Can numbers lie?

Get ready for some weird economic numbers and even weirder statements from the so-called experts. This last quarter’s GDP numbers are in and show solid growth at 3%. The Trumpers are doing high fives and are saying that the economists were wrong. The previous quarter GDP fell 0.5 percent. Just like the employment numbers have to be dissected to discover that while job growth grew, private sector employment fell, what is the story about the swings in GDP? It’s the tariffs. When GDP fell it was because businesses stocked up on imports in the face of increasing tariffs. This past quarter, because of the tariffs, imports fell a staggering 30 percent. The GDP accounting measures domestic production so importing goods subtracts from GDP because the production of those goods was abroad. So if Trump wants to show strong GDP growth he should increase all tariffs to 1,000 percent! But like the employment numbers, the other numbers point to a slowing economy. Private domestic investment fell 16 percent. This is likely from companies that use imports as an input.  Private domestic final purchases also slowed to just 1.2%.  Inflation rose 2.5% which is still above the Fed’s target of 2 percent. Some wag said that in order to appease Trump that the Fed should simply raise its inflation target to 3 percent and then cut rates.

So let’s wait and see. It looks like instead of 10%, Trump’s universal tariffs will be 15 percent. Trump’s deals with Vietnam, the UK, Japan and the EU have imports at 15 percent and exports at zero. Why the president wants Americans to pay more for foreign goods while they pay less for ours is pure mercantilism. After all the deals are done with the major trading “partners” let’s see if the administration didn’t spike the ball before crossing the goal line.