A recent report in the Wall Street Journal revealed that some former Trump administration officials have been considering proposals that involve the former president playing a role in setting interest rates. This includes a 10-page document outlining a policy vision for the central bank, where Trump would be consulted on interest rate decisions made by the Fed. While this may seem laughable, it raises important questions about the significance of interest rates in the global economy.
Interest rates are crucial because they determine the cost of borrowing money, which in turn is used to borrow goods, services, and labor around the world. Credit is constantly being produced, and the market reality is that interest rates are based on the cost of producing the various goods and services that we desire. While Trump may like low interest rates, the reality is that lenders will always require a return on their investments, which is where compound returns come into play.
Despite Trump’s preference for low interest rates, the markets operate independently of any individual’s desires. The setting of interest rates is determined by global production, currency policy, and market forces. Trump’s interest in setting interest rates is particularly questionable given his preference for a weak dollar, as a weak dollar could potentially lead to higher interest rates in the long run.
There is likely to be much debate and discussion surrounding Trump’s interest in setting interest rates, with some critics arguing against the idea of a president having such powers. However, this debate highlights a broader issue about the extent of the Fed’s powers and its role in controlling interest rates. The idea of any individual or entity setting interest rates is flawed, regardless of their political affiliation.
The discussion of Trump’s interest in setting interest rates may seem absurd, but it serves as a reminder of the limitations of the Fed’s power over the economy. While it may be entertaining to speculate about the potential consequences of Trump’s involvement in interest rate decisions, the reality is that interest rates are ultimately determined by market forces. This serves as a cautionary tale about the dangers of central planning and the importance of allowing market forces to operate freely.
