US Fed resists Trump’s pressure tactics

The United States Federal Reserve had on Wednesday cut the interest rate by 25 percentage points, to be in the range between 4 per cent and 4.25 per cent. There was an indication that there would be further cuts in the rate in 2025.

The decision was opposed only by the latest President Donald Trump appointee, Stephen Miran, who was sworn in Tuesday morning. Miran voted for a 50 percentage point cut. Two other Trump appointees from the president’s first term went with the majority for the moderate cut.

Political confrontation is simmering between President Trump and Fed Reserve chairman Jeremy Powell. Trump wants greater reduction in interest rates with the expectation that businesses and manufacturers could borrow at cheaper rates and the economy could move forward at a brisker pace. Powell and the Fed Reserve have their eyes set on the inflation rate, which is hovering at 3 per cent, above the mandated 2 per cent.

The apprehension is that cheaper interest rates would fuel inflation, and it would then be difficult to bring it down. The US economy has been growing at a slow pace. There is only a slight improvement in the growth rate from 1.4 per cent to 1.6 per cent. Unemployment is around 4 per cent. Experts fear that the US could be witnessing stagflation – stagnant growth and high inflation – as it did in the 1970s.

Trump has been pursuing a policy of getting rid of illegal immigrants, of threatening American businesses and manufacturers to bring their production units back home. He has been restricting imports by raising the tariff walls in the hope that Americans will buy less of foreign goods and opt for home-made stuff.

The economic logic is not working out because people want to buy things at lower prices and lower tariffs has meant that goods were available to Americans at lower prices. Secondly, a large number of Americans are finding it hard to make the two ends meet because of the low growth in jobs because of low economic growth. It looks like the American economy is caught in its own contradictions, unable to open up and grow. Trump’s economic solutions do not seem to be working.

While signing trade deals with the European Union, Japan, and the Gulf Arab states, Trump had insisted that these countries should invest in the US. The forced investment does not speak well of the state of the American economy. There was a time when every company and every country had wanted to invest in the US because it was an attractive economic destination. But today, with its laggard growth rate, investment in the US is not an attractive proposition. Though Trump’s intention is to revive the economic fortunes, his agenda of Making America Great Again (MAGA) is turning out to be crude political propaganda.

Americans are not too sure that it is working. Many Americans believed in MAGA and that is why they had voted him president for a second term last November. Trump still has three years to make his plan work. In the last eight months, all that he has done is to issue executive orders. His own Republican Party legislators are not convinced of his policy decisions on government spending and welfare measures. Many of their own constituents would be affected by it.

What is making Trump unpopular is his belligerent manner of pushing his decisions down the throats of people. Resistance is emerging, and it is going to be a roadblock for his economic programme. The president has to work in collaboration with the House of Representatives and the Senate. In both the Houses, the Republicans enjoy slender majority, and they cannot push Trump’s programmes.