There really is no reasoning with Trump fanboys when it comes to the reality of his policies. They will spin anything and everything to portray Trump’s blatant anti-freedom and anti-market policies as secret crypto-libertarianism. It’s all 1000-D chess, you see. 

The latest bogus narrative of this sort comes from one of my readers who is convinced that Trump is striving against those central bankers who are the bad guys because they aren’t helping Trump inflate the money supply as much as Trump wants. The reader objects to my Wednesday column which points out that Trump has become even more of an inflationist than the current crop of central bankers. Central bankers are natural inflationists, of course, but Trump wants them to inflate even more.

Yet, after reading that column, one reader (who we’ll call E.L.) is sure that Trump is right and the Fed should implement a “25-basis-point cuts as quickly as possible.” The reader then claims that we need the central bank to set interest rates because we can’t “trust banks to rationally set interest rates on their own.” 

Then what is the “correct” interest rate? Well, the reader thinks, like Donald Trump, that interest rates should be lower (and no more precision is ever offered than that).  That’s not happening because, accoridng to E.L., “the word on the street is that Jerome Powell is part of the deep state cabal and is keeping rates high just to screw Trump.”

This statement is nonsense in at least two ways. First of all, the Fed doesn’t “keep interest rates high.” If the Fed didn’t exist, there is about a 99.99% chance that interest rates would be higher than they are. Rather, one of the primary jobs of the Fed is to keep interest rates lower than they would be in a free market. And the Fed is doing exactly this. Through its regular open market operations, the Fed intervenes in the market to keep the federal funds rate within the target window (which is 4.25% to 4.5%). If the Fed were simply to do nothing, it’s almost guaranteed that interest rates would rise. So, it’s highly misleading to ever say that the Fed “is keeping interest rates high.” Rather, if interest rates are rising, it is far more accurate to say “the Fed is forcing down interest rates less than usual.”

Secondly, E.L. isn’t even right that Powell, et al, are taking a hawkish approach “to screw Trump.” Now, it’s entirely possible that Powell wants to screw Trump, but Powell certainly hasn’t shown much enthusiasm for doing so through actual monetary policy. Rather, contrary to E.L.’s non-factual theory, Powell actually adopted more dovish policy in February when he and the FOMC backed off their earlier targets for shrinking the balance sheet. Shrinking the balance sheet is a policy tool that is essentially equivalent to allowing interest rates to rise. By slowing the balance sheet runoff, as Powell did recently, he is doing the equivalent of pushing down interest rates. In other words, Powell’s policy is relatively dovish, and E.L.’s seems unaware of the how the Fed is using its balance sheet. 

(We might also note that this inflationary capitulation on balance sheet policy comes after several months of cuts to the target interest rate continuing the dovish policy of late 2024. The idea that the Fed has become anti-inflationary—whether it’s to make Trump look bad or not— is fantasy.)

Indeed, the very existence of the balance sheet (which contains trillions of dollars’ worth of MBS and Treasury assets) is evidence that the Fed is very much invested in artificially lowering interest rates and is not “keeping interest rates high” at all. After all, the Fed bought up those trillions in assets during the Covid Panic and during the GFC for the specific purpose of lowering interest rates. Every day that the balance sheet continues to have trillions in assets on it is another day that the Fed is actively intervening to keep interest rates low. 

If the Fed were to dump its trillions in assets, an enormous amount of monetary deflation would set in and interest rates would rise substantially. That’s not happening, and Powell is actually working to slow that process. 

So, Trump fanboys, I’m sorry that the Fed isn’t pumping the money enough to suit you in your quest to create an inflation-fueled illusion of a strong economy while Trump raises taxes and plows ahead with trillions in deficit spending. If Trump were smart, he’d want a severe recession to clean out all the garbage malinvestments that have arisen over the past 15 years on the back of relentless monetary inflation. There would then be time to build a firmer foundation for a real economy before the next presidential election. But Trump apparently doesn’t understand the problem of inflationary business cycles, or he doesn’t care, and thinks only in terms of short-term policy. 

Unfortunately, though, Trump has succeeded in convincing his disciples that now the problem with the central bank is that it’s not inflationist enough. His plan has worked brilliantly. For example, note this recent tweet from InfoWars: 

For the Alex Jones crowd, central bank fiat money is now good! The only problem with the central bank now, it seems, is that it is “private.” (That latter claim isn’t even true, as it is abundantly clear the central bank is effectively an organ of the US Treasury, and the Board of Governors is both a de facto and def jure government agency.) 

But this is just the latest example of the rhetorical gymnastics Trump supporters will do to explain how they completely reverse their positions if Trump says so. After many years of publishing articles denouncing the Fed for its paper money and its impoverishing inflation, suddenly Alex Jones wants the Fed to inflate more. 

InfoWars declares the Fed “Tries to Crash US Economy.” Like Trump, InfoWars has now adopted the rhetoric of Wall Street easy-money addicts who call for more money pumping lest the central bank “crash the economy” through a “policy error.” Jones might as well have Jamie Dimon and Ben Bernanke his show to push the inflationist narrative, since Info Wars has now made its peace with Fed inflation. But perhaps they haven’t and it’s all 10,000-D chess!