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Under Donald Trump, Fed faces politicization

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By Virginie MONTET

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With the 2020 election looming, Trump often praises the health of the U.S. economy -- but on Friday he said that he wants it to take off like "a rocket ship."

It will after he gets this huge trade deal with China done, which is coming soon.

-1 ( +2 / -3 )

Why is this so? Let's paint a complete picture.

In seven years of the most accommodative monetary policy in U.S. history, the Fed kept the Fed funds rate at zero between 2008 and 2015. The recession ended in June 2009.

Therefore, during most of the Obama presidency, the Fed funds rate was at ZERO, presumably to prop up a moribund economy.

12/17/2015 0.50

Trump became president-elect on 11/6/2016

12/15/2016 0.75

Trump presidency. Economy and stock market heat up.

3/16/2017 1.00

6/15/2017 1.25

12/14/2017 1.50

3/22/2018 1.75

6/14/2018 2.00

9/27/2018 2.25

Economy slows down. GDP growth down.

12/19/2018 2.50

The Federal Reserve prefers to keep the fed funds rate between 2 and 5 percent. It's the sweet spot that maintains a healthy economy. That's where the nation's gross domestic product grows between 2 percent and 3 percent annually. It has a natural unemployment rate between 4.5 percent and 5 percent. Price increases remain below the Fed's inflation target of a 2 percent core inflation rate. The fed funds rate was 2.5 percent as of March 21, 2019.

President Trump simply wants to keep the economy roaring, without artificial monetary policies holding it down.

1 ( +3 / -2 )

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