I find nothing so boring or tedious than the incessant discussions on CNBC regarding the Fed rate.
Instead of six "segments" each day on CNBC regarding the Fed rate, it would be nice to see a "summary segment" at the end of each week.
Having said that, here's a nice review over at Barron's regarding the Fed rate, Trump and Powell.
Bottom line: lowering the Fed rate makes raising the debt limit more palatable.
US debt: $37 trillion.
Federal Funds Effective Rate: historical. Link here.
- 1955 - 2025:
- range: 0.0 - 18%
- outliers: 0.0%; anything over 10%
- current: 4.33%
- typical: 4.5 - 5.5%, when throwing out the outliers
- prior to December, 2008: Fed rate never went to zero percent
- zero-percent Fed rate is a "modern" phenomenon (post 2008)
- 4.5% seems to be the "sweet spot"
- notable periods in history (numbers rounded):
- 1967 - 1969: sharp rise from 4% to 9% -- Vietnam War
- 1972 - 1974: sharp rise, even worse, from 3% to 12%; Yom Kippur War, 1973 - 1974 oil embargo; global energy crisis
- 1977 - 1981: unprecedented surge, 4.5% to >19%;
- in response to surging inflation:
- "the Great Inflation" caused by a combination of factors
- OPEC oil price shock
- expansionary monetary policy
- wage-price spirals
- 1983: 8.8% after major intervention by the Fed
- from 1983 to present day: finally, some adulting in the Fed
- of the three -- OPEC oil price shock; expansionary monetary policy, wage-price spirals, what is currently most noteworthy
The expansionary monetary policy in the 1970s was primarily driven by a desire to combat rising unemployment and stimulate economic growth, particularly in the face of stagflation (high inflation and stagnant economic growth).
The Federal Reserve, influenced by Keynesian economics, believed that increased government spending and lower interest rates would boost aggregate demand and reduce unemployment. However, this policy inadvertently fueled inflation, leading to a period of "Great Inflationl
- 1970 - 1978: Arthur F Burns
- 1978 - 1979: G William Miller
- 1979 - early 1980s: Paul A Volcker
Arthur Burns, an economist chary of governmental controls, supervised the U.S. economy throughout the 50s, 60s, and 70s by serving as chair of President Dwight D. Eisenhower's Council of Economic Advisors and, later, as chair of the Federal Reserve under Richard Nixon, Gerald Ford, and Jimmy Carter. Read the Nixon - Burns connection.
Bottom line:
- nothing wrong with current rate:
- can make case for gradual rate to 3.0% over 12 to 18 months
- but if we don't see that, that is not particularly concerning
- politically, the longer JPow holds off lowering rates, the better the timing for Trump and the GOP going into the 2028 election cycle
- right now, the "Fed rate" discussion is more political than monetary / fiscal
- administration policies on everything from tariffs to energy to global warming to fighting wars will have a much greater impact than the Fed rate, and JPow knows that.
I often flip-flop on issues, and I often flip-flop on thoughts about Jay Powell but in general, it seems, and I could be wrong, I have been very supportive of Jay Powell in my postings over the years.
