On Monday, Donald Trump stated what is essentially a fact to anyone who follows financial markets — the Federal Reserve has created a “false economy” that has artificially inflated the stock market.
“They’re keeping the rates down so that everything else doesn’t go down,” Trump said in response to a reporter’s request to address a potential rate hike by the Federal Reserve in September. “We have a very false economy,” he said.
“At some point the rates are going to have to change,” Trump, who was campaigning in Ohio on Monday, added. “The only thing that is strong is the artificial stock market,” he said.
This isn’t controversial. The financial media constantly speculate about whether the Federal Reserve will raise interest rates and how that will impact the markets. It is generally understood that higher interest rates spell trouble for equities — and that would be especially true given the historically overbought status of the stock market.
Hillary Clinton certainly knows this. She’s not stupid. But, whether out of loyalty to Goldman Sachs or out of political expediency, Clinton responded to Trump’s comments by defending the Federal Reserve as an institution that should be above reproach:
Democratic presidential candidate Hillary Clinton criticized Republican rival Donald Trump on Tuesday for making comments about the Federal Reserve’s monetary policies, which she said should be off-limits for U.S. presidents and presidential candidates.
“You should not be commenting on Fed actions when you are either running for president or you are president,” Clinton told reporters on her campaign plane. “Words have consequences. Words move markets. Words can be misinterpreted.”
“He should not be trying to talk up or talk down the economy, and he should not be adding the Fed to his long list of institutions and individuals that he is maligning and otherwise attacking,” she said.
This begs the question — does Clinton believe the Federal Reserve is infallible? Does she really believe that no accountability or oversight is needed or even warranted?
First of all, in order to be infallible, you probably need to be correct once in a while. A broken clock gets it right more often in a day than the Federal Reserve does in a year. Their economic projections are consistently off the mark, so much so that even The New York Times, no opponent to monetarism, has admitted that the Federal Reserve frequently gets its growth projections wrong by a lot.
The Fed is like the captain of a rudderless ship, sailing aimlessly into the abyss, to and fro, assuring us it knows exactly how to get to land, even as our rations are running out. And Hillary wants us to blindly trust the captain!
Facts are a stubborn thing, and the reality is that the Fed’s low interest rate policy has done a lot of damage to a lot of people. Yes, it resulted in an inflated stock market, as Trump suggested. That certainly benefited the richest one percent of Americans.
But what about normal everyday people who aren’t invested in the stock market? What about American workers who haven’t received a raise in 16 years? What about families who are struggling to get by as food and health care costs soar?
As Sean Davis previously wrote at The Federalist, rising prices and stagnant wages are real:
…[E]verything the Fed has done since 2008 has been done for one reason: to raise prices. The central bank’s zero interest rate policy, or ZIRP, was not instituted to make deflation more likely. QE1 was not implemented to decrease prices. QE2 was not implemented to decrease prices. QE3 was not implemented to decrease prices. It’s not conspiracy mongering to point out that what’s happened — higher prices — happened precisely because the Fed wanted…higher prices. Is the Fed the only reason for higher prices? Of course not. But it’s clearly a factor.
Trump is correct to criticize the Fed. Our broken monetary policy is one of the biggest problems holding our economy back. Until we return to market-set interest rates, the Fed will continue to distort wages and prices and promulgate income inequality.
Terry Schilling is the executive director of American Principles Project.