Lori Falce: Trump's interest in interest rates

Aug. 1—On Wednesday, Federal Reserve Chairman Jerome Powell did what needed to be done rather than what President Donald Trump wanted him to do.

Powell announced that the Fed was leaving short-term interest rates unchanged, declining to cut them from the 4.3% rate where they have stood for months.

The Fed sets interest rates not to tip the national economy in one direction or the other but to keep it on an even keel. Think of the economy like an old-fashioned balance scale. The Fed's job is to tweak interest rates here and there, raising them a bit one time and letting them fall another, to stay level.

That's because the Fed has two responsibilities. Established in 1913 in the wake of a 1907 financial crisis, the Fed's mandate is about the stabilizing of prices and keeping employment as high as possible.

Raise rates and it encourages people to keep their money in the bank instead of spending it. Drop rates and keeping money in the bank has less appeal, but borrowing money to buy a house or a car becomes attractive.

Powell doesn't want to do that. Pour on the fuel and you can get things too hot in the wrong way. As the nation's economic fire chief, Powell has no interest in starting a blaze he would have to put out.

The president should listen to Powell, even if he doesn't want to. The Fed chief was Trump's pick during his first term. Trump could, in fact, use Powell as a way to take credit for the U.S. economy's more favorable weathering of the pandemic and post-pandemic financial winds that buffeted other countries, even when Trump was out of office. Hey, he could say, that was my guy.

Instead, Trump is unleashing vitriol on the man at the economic helm, screaming at him in all-caps on social media.

The president is ignoring the fact that keeping the rates steady is how the Fed is allowing the country to stay as even as it has while the Trump administration juggles tariffs with every nation on the planet.

We can have someone turning international trade into a bingo game while someone keeps the banks open, or we can have interest rates on the floor while trade remains more rigidly in place. To do both at the same time is gambling with the rent money.

But maybe the president really wants this debate. Maybe he really wants to focus everyone on the spectacle of his epic feud between a 79-year-old commander-in-chief and a 72-year-old investment banker and lawyer. Maybe he wants people to focus on his own fiery outrage and Powell's subdued calm.

Because the alternative is that they keep asking about the Epstein files. That's where the interest really lies.

Lori Falce is the Tribune-Review community engagement editor and an opinion columnist. For more than 30 years, she has covered Pennsylvania politics, Penn State, crime and communities. She joined the Trib in 2018. She can be reached at [email protected].

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