President Trump is continuing to push for lower interest rates. Of course this puts at risk the independence of the Federal Reserve which may be a dangerous precedent. But this consideration aside, why does Trump desire lower interest rates (aka printing money)?
No doubt Trump thinks that lower interest rates, which means more money in circulation, will help the economy to grow in the run up to the 2020 election. Can printing money really cause the economy to grow?
It is true that the Phillips Curve shows a correlation between increasing inflation, which means more money, and lower unemployment. But economists have established that this is a short term effect only. Pumping money into the economy (aka lowering interest rates) may lead to some growth in the short term, until prices and wages take the time to adjust to a newer higher level at which point the extra money has created nothing more than inflation. The economy goes back to where it started with prices and wages higher in dollar terms, but just the same in real inflation-adjusted terms.
Admittedly, in a year before election this short term boost may be tempting. However, the US is currently enjoying record low unemployment. Everyone is working in factories, restaurants, beauty salons and offices, producing goods and services. In such a situation where the economy is already running at full tilt, its hard to imagine that printing more money will grow the economy even in the short term.
So why is Trump pushing for interest rate cuts? Maybe he's lining up a scapegoat in case a recession is coming. Perhaps he's trying to distract the media from Ukraine-gate. Or perhaps he simply misunderstands that you cannot grow an economy, especially one which is already at virtually full employment, simply by lowering interest rates and printing money.
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