How Politics Constrain the Fedral Reserve and Other Economis

Economies from the United States to the European Union to China are slowing, presenting a challenge for central bankers, whose tools are limited at a time when interest rates remain historically low in much of the world.  In the United States and Britain, central bankers are hoping that trade uncertainty and political strife will not kill long economic expansions. And in other places, economic policy makers have been urging politicians to step up their spending in order to save the economies from tipping into recession. Politicians might be taking this with an eye on their voting bases. President Trump is locked in a trade war with China, with the latest round of tariffs scheduled to take hold on Sept. 1, and he shows no intention of backing down. American tariffs on European automobiles remain a possibility.  Complicating matters is President Trump’s view that what is good economically for other countries is bad for the United States. On Thursday, he once again needled the Federal Reserve Board over Germany’s low interest rates, suggesting that negative interest rates on German bonds were putting the United States at a disadvantage. “Germany sells 30 year bonds offering negative yields,” President Trump wrote on twitter. While central bankers strive to be politically independent and avoid giving elected leaders advice, they have acknowledged that government policies are threatening growth. The Fed cut interest rates for the first time since the Great Recession in July, a move driven in part by Mr. Trump’s trade policies and partly by the broader slowdown in global growth.  

Economic action might be needed sooner rather than later: Recession signals have been flashing in American bond markets, Japan and South Korea are engaging in their own trade war, and consumer and business confidence have taken a hit in many parts of the world. While recession far from guaranteed, it is looking increasingly likely across a number of economies, including the United States. 

Link to article : https://www.nytimes.com/2019/08/22/business/economy/fed-jackson-hole-growth.html