Eight years of near zero interest rates in the bond market have inflicted untold pain on America’s retired investors and savers. Those who saved diligently year in and year out for a comfortable retirement have been punished by an activist Fed. A Fed that has tried to use monetary policy, a tool designed to smooth out cyclical speed bumps in the economy, to repair structural economic problems best addressed by fiscal authorities.
Could a Trump Presidency spell the end of America’s failed experiment with Monetary Keynesianism?
As the WSJ points out here, a Trump presidency may offer hope. Mr. Trump has made the right noises on monetary policy and he is surrounding himself with the right type of economic advisors.
While Mr. Trump is no economist, he is articulating a view that is getting traction with economists and financiers: that even if superlow interest rates don’t produce inflation, they can do more harm than good by distorting markets, redistributing wealth and fueling bubbles, and the Federal Reserve ought to abandon them.
We should look at whether Fed intervention in interest rates or credit markets distorts monetary signals, so that you get this false economy,” said Judy Shelton, an author on monetary topics and adviser to Mr. Trump, in an interview.
Mohamed El-Erian, an adviser to the German insurer Allianz, says: “You don’t get growth, but you have the cost of higher wealth inequality, and it’s very visible.”
This monetary heterodoxy is shared by other political leaders: British Prime Minister Theresa May has said the Bank of England’s bond buying (known as quantitative easing) exacerbates inequality and Wolfgang Schäuble, the German finance minister, has blamed savers’ unhappiness with low rates for fueling support for the populist Alternative for Germany party.
Jeremy Jones, CFA
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