You probably have read that the president-elect of the United States and the Federal Reserve are headed for a showdown. Donald Trump and his advisers have talked of 4% growth, an aggressive, likely unattainable, rate of expansion. But even coming close to that growth rate would nevertheless force the Fed to raise interest rates to contain inflation. During his campaign, Trump said the Fed’s low-for-longer interest-rate policy had made a mess of the economy and financial markets. But the Globe and Mail’s Ian McGugan thinks higher interest rates would, in fact, irritate the next president. “Mr. Trump, who has been known to interfere in a thing or two, might not take kindly to that arrangement,” McGugan wrote of a central bank that matched faster growth with higher borrowing costs. Edward Luce of the Financial Times made a similar point. “Republicans have a history of decrying loose monetary policy when in opposition but embracing it when in power,” he wrote on December 11.
We know so little about what Trump really wants, it is impossible to make an educated guess about what he will actually do in power. The idea of Fed chair Janet Yellen being hectored by an Oval Office Tweetstorm is an attractive one for news-and-opinion mongers, who love tension, both real and imagined. There will be clashes of opinion between a Fed chair appointed by a Democratic president and ascendant Republicans. But I’m not convinced Trump’s White House and Yellen’s Fed will be so far apart on monetary policy. That’s because the central bank will be in no great hurry to push borrowing costs materially higher.
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