The Fed chairman, Jerome Powell, announced again that the Fed is going to hold rates where they are, marking the third (or fourth) time that the chairman has stood pat on interest rates since Donald Trump’s inauguration.

Trump responded, saying,

He’s not a smart guy. He’s worried about inflation. If there’s inflation in six months or nine months you ... raise the rates. I guess he’s a political guy. He’s not a smart person and he’s costing the country a fortune.

I too strongly believe that the Fed is making a mistake, minimally, and quite possibly intentionally kneecapping the president’s agenda in the hopes that its prognostications prove true — due to its inflexibility.

The president has laid out a multifaceted economic agenda premised on investment and growth: lower taxes, reduced regulations, and more balanced trade arrangements (tariffs) with global trading partners.

Two months ago, the sky was falling, so we heard ad nauseam.  Donald Trump’s tariff policy would lead to inflation and recession.  The “pervasive pessimism” was thick, with “experts” and pundits claiming that Donald Trump was leading us into another Great Depression.  None of that happened.  Inflation is down; wages are rising.  Jobs are plentiful.  Tariff revenue is up.  Trade deals have been signed (the U.K.), with others in the hopper.

The one glaring negative economic metric is housing.  According to realtor.com,

• The inventory of homes for sale rose 31.5% year-over-year, marking the 19th consecutive month of year-over-year inventory growth.
• The total number of unsold homes, including those under contract, was up 20.8% compared to last year. 
• Price cuts were reported on 19.1% of listings – the highest share for any May since at least July 2016 when our tracking began, and the fifth consecutive month with growing price reductions.

Home sales are stalled.  Mortgage interest rates are at decades-long highs, hovering around 7%.  Homebuyers are priced out of many markets, with home affordability significantly outpacing income gains.  According to realtor.com, 72% of sellers will use the proceeds of their home sale to buy another home, but it is difficult to rationalize having an existing mortgage at 3% and upgrading to a newer home at 6.5–7%.

With some trepidation in retail due to tariffs, spurring increased home sale activity would (seemingly) be a way to increase economic activity.  There are no tariff premiums on home sales.    

Lower rates juice the economy and permit America to grow out of its managed malaise.  If economic indicators don’t positively respond to the rate cuts, re-evaluate bringing them back up, but to present good economic actuals, and paint a sky-is-falling forecast of how bad things might get, only increases that certainty that they will be proven right — by their own actions.

The president is right - Jerome Powell is “not a smart person.”

Image: Jerome Powell.  Credit: Federalreserve via Flickr, public domain.