Tag: interest rates

What I believe

I am a classical liberal fusionist. The following brief outline will hopefully explain what that means followed by a brief summary of where Trump stands relative to my beliefs of what is good for America.

I want to be free to make my own decisions about my life and for you to be similarly free as well. As we live together with 8.3 billion others, we must have understandings/rules/laws guiding our interactions if we are to live peacefully with each other. An efficient government limited to those purposes is essential. As a classical liberal I strongly support the limited, enumerated powers and structure (checks and balances) of government provided by the American constitution. Our constitution provides that our government will have limited powers sufficient to protect us from foreign and domestic threats of corruption, fraud and attack, secure our property rights, adjudicate disputes, provide public goods (e.g. roads, pollution regulations) and establish the rules (guardrails) for private enterprise. Our constitution specifically prohibits our government from infringing upon our freedom of speech, assembly, or religion.

Such limited government powers would leave use with substantial freedom to choose our own way of life. The quality of our lives will depend importantly on how wisely we use that freedom. While it would be ideal for those in need of help to receive it from family and friends and from private charities established for that purpose, I believe that the private provision of charity on any large scale has been so displaced by government welfare that I accept the government’s role in providing a social safety. But the current mix of programs restrict our freedoms and are inefficient. I propose a Universal Basic Income as the most efficient approach and the most consistent with individual freedom. https://wcoats.blog/2020/08/20/replacing-social-security-with-a-universal-basic-income/

America has flourished because the substantial freedom our government leaves us is generally used well. The vast majority of us use our freedom in ways that respect the freedoms of others. The three monotheistic religions—Christianity, Judaism and Islam (and no doubt others as well)—provide important guidance for virtuous behavior. These include honesty, charity, love, prudence, justice, fortitude, temperance, humility, forgiveness, etc. Virtue is the other leg of Fusionism, which is explored in the wonderful new book by Stephanie Slade: Fusionism: Liberty, Virtue, and the Future of the American Right.

While respecting the freedoms of others, I may choose (within my abilities) how I make my living, whom to buy from and sell to (free trade), and how to spend my free time and with whom. Much of our relationships with others will reflect the locally accepted norms of good behavior. This extends far beyond driving on the same side of the road. Some of these norms have been codified into laws, which we expect to be applied equally to all of us. Some are the norms of courteous behavior (good manners). Thus, freedom and rights have fostered the entrepreneurship that has made the U.S. the economic envy of the world.

But today, with the internet and jet planes, our world extends far beyond our own communities. Engaging with as much of the world as possible peacefully has benefits. It can enhance our safety by making agreements with other governments that reduce the occurrences of war. It can add joy to our lives by exposing us to the many wonder of other cultures and geographies. It has enormously lifted the average standard of living because of the extension of the benefits of specialization made possible by trade. Global average per capital real income has risen 13 to 15 times (1,200 to 1,400%) over the last two centuries. This after many, many centuries of virtually no change.      

But what is required to travel to or trade with other countries? How can our planes fly over and safely land in other countries? How do we prevent the signals from other countries’ satellites from interfering with the internet and other signals from our own as they fly over? Just as our Federal government can establish laws to protect our safety, liberties and property across state lines that benefit us all, they need to do so across country borders.  https://wcoats.blog/2020/12/01/the-rule-of-law-china-and-the-u-s/ Without such agreements we would not be free to trade and travel nearly as widely as now. https://wcoats.blog/2017/01/06/the-liberal-international-order/

We have failed to live up to these standards on many occasions, but they are the north star to which we strive. Or at least until now. On July 23, 2019, speaking to a Turning Point USA audience (and on other occasions as well) President Trump said: “I have an Article II, where I have the right to do whatever I want as president.” With that he threatened to throw away the limits on the power of our government and the checks and balances on its exercise. Some of his policies have been consistent with the principals I believe in, but many have not.

The Economy: The government’s limited role of protecting property rights and promoting business transparency has unleashed the entrepreneurial energies that have led to our country’s flourishing. Like President Biden before him, Trump thinks his ideas of where to put our resources are often better than the market’s—thus projecting government activities beyond its proper functions. He was right, however, to think that many government agencies and their regulations were more burdensome than helpful to the private sector. A review and streamlining of the government’s oversight of the economy would be a good idea. Unfortunately the Department of Government Efficiency (DOGE) led by Elon Musk was a crude hatchet job that did more harm than good.  https://wcoats.blog/2020/11/04/saving-the-american-dream/

Immigrants: America would not exist without immigrants. https://wcoats.blog/2026/07/06/immigrants-2/ Currently they are important to provide the younger workers needed to pay the expenses (e.g. Social Security benefits) of our growing number of longer-living retirees. Rather than allowing more legal immigrants, Trump has reduced the number and promised to deport those here illegally. https://wcoats.blog/2026/02/08/immigrants/ . While I support efforts to prevent illegal immigration, Trump’s quickly recruited and improperly trained ICE agents have murdered innocent Americans and deported American citizens, along with illegal immigrants, without due process and in violation of court orders. The rule of law be damned. https://wcoats.blog/2025/08/29/immigration/

Free Speech: Our constitution specifically protects free speech for a good reason: https://wcoats.blog/2012/09/15/further-thoughts-on-free-speech/ It helps build public consensus and support for good public policies.

Trump goes ballistic when criticized and misuses executive power to punish critics. These have included suing critics, threating the licenses of their employers, etc. https://wcoats.blog/2026/08/21/our-first-amendment-freedom-of-speech/

“ABC late-night comedian Jimmy Kimmel said an interview he conducted with Texas Democratic Senate nominee James Talarico will not air on broadcast because of what he called threats issued to his network by President Trump’s Federal Communications Commission.” The Hill 9/10/2026

Our constitution provides checks and balances on the powers of government in an effort to prevent (or minimize) the overreaching of government. Donald Trump took major actions against agency inspectors general across both of his presidential terms: Between April and May 2020, he removed or replaced five agencies’ inspectors general in a series of late-Friday decisions: just days into his second term, he dismissed seventeen independent inspectors general at once across cabinet departments—including Defense, State, Transportation, Labor, and Energy. Subsequent individual firings followed throughout early 2025 (such as the USAID IG in February 2025).

The nonpartisan inspectors general review agency programs, financial statements, and operations, recommend changes to make government operations more economical and effective, manage hotlines and intake processes for employees to report wrongdoing safely, and report their findings to the heads of the agencies they monitor and to Congress. In September 2025, a federal judge ruled that the mass January 2025 firings violated federal law because the administration failed to provide the mandatory 30-day notice and substantive rationale to Congress, though the court did not order their reinstatement.

At least 20 high-ranking generals, admirals, and civilian defense leaders have been directly fired or pushed out of their roles by Defense Secretary Pete Hegseth and President Trump. When including behind-the-scenes actions—such as blocking promotion rosters, cancelling appointments, and forcing early retirements—over 80 generals and admirals have had their careers altered, blocked, or cut short as part of a sweeping restructuring aimed at downsizing senior military leadership and reshaping the Pentagon. According to my military friends, those removed were generally the best of the lot. Not bowing to Hegseth’s silly games proved fatal. Where might this be going?

Trade: The Trump administration has stifled the free market allocation of resources to the detriment of our growth in several ways. He has complained about offshoring manufacturing resulting in our trade deficits (which by the way help finance the government’s fiscal deficits thus keeping interest rates on government bonds lower than otherwise). In fact, however, manufacturing output in the US is greater than it has ever been. Domestic employment in manufacturing, however, has fallen because of increased labor productivity.

Trump claims that high tariffs are needed to reduce our trade deficit. But he has not imposed them in ways sanctioned by the World Trade Organization, i.e., to improve competitiveness with a level playing field. His tariffs often seem weapons to get countries to agree to other totally unrelated goals. Trump’s bullying has cost the U.S. more than trade. Often his threats require that foreign companies building plants in the US give shares to the Federal government. The US government now owns shares in some 40 or so such companies (https://wcoats.blog/2026/08/10/econ-101-capitalism-and-socialism/ ). And the courts have struck down some of his tariffs. https://wcoats.blog/2024/11/26/tariffs/

Wars and foreign policy:  During his Presidential campaign, Trump promised to end our forever wars. Then, with Israel, he ordered an invasion of Iran. One reason seemed to be to stop Iran from developing atomic bombs (correcting Trump’s first term error of withdrawing from the Joint Comprehensive Plan of Action with Iran which prevented such a development). https://wcoats.blog/2026/04/02/iran-and-the-bomb/. “Trump’s threats against countries trading with Iran expose the limits of US economic power, as allies resist Washington’s demands and the global economy moves towards a less American-dominated order.” “Trump is hastening the decline of American power,” by Joseph E. Stiglitz 9/12/2026. https://johnmenadue.com/post/2026/09/trump-is-hastening-the-decline-of-american-power/

Trump’s continue support of Israel’s ethnic cleansing of Gaza and increasingly the West Bank has further isolated the US, which stands alone with Israel in the UN in defense of these humanitarian atrocities. https://wcoats.blog/2026/03/31/fixing-palestine/

I agree with Trump’s insistence that others (in particular NATO members) pay their share of the cost of the defense they get with American help. But insulting our allis, often with tariff increases or threats, is not in America’s interest, nor in compliance with WTO rules.

In The New York Times (9/10/2026), Tom Friedman proclaimed that: “Trump is the most un-American president in my lifetime. No president has done more, and continues to do more, to unravel the post-World War II institutions and alliances that were built and sustained by his predecessors. We are talking about… our intimate relationships with Canada and Mexico and our military alliances with South Korea and Japan — to name but a few. These relationships and institutions together produced global and American prosperity and great power peace for generations….”

During his presidential terms, Donald Trump initiated U.S. withdrawals from or ceased participation in a wide range of prominent international treaties, agreements, and bodies:

  • Paris Climate Agreement: Withdrawn during his first term and formally pulled out of a second time in January 2025.
  • Iran Nuclear Deal (JCPOA): The U.S. withdrew in May 2018.
  • Trans-Pacific Partnership (TPP): Withdrawn via executive order in January 2017.
  • UN Framework Convention on Climate Change (UNFCCC): Trump ordered the U.S. withdrawal from the founding 1992 climate treaty.
  • Intermediate-Range Nuclear Forces (INF) Treaty: The U.S. exited this Cold War-era arms control treaty with Russia in August 2019.
  • Open Skies Treaty: Withdrawn in November 2020.
  • World Health Organization (WHO): Initiated withdrawal in 2020 and executed withdrawal actions again during his second term.
  • UN Human Rights Council (UNHRC) & UNESCO: Withdrawn during his first presidency.
  • Global Compact for Migration: Withdrawn in December 2017.

Standing alone we are much weaker than when standing together with friends.

Interest rates: While Trump’s threats to the Federal Reserve to lower interest rates reflects a complete misunderstanding of the forces in play and the Trump administration’s perverse impact on them, I have confidence in the integrity of Kevin Warsh and expect the Fed to raise its policy rate next week in keeping with its commitment to lower inflation to 2%. https://wcoats.blog/2026/08/29/inflation/

Corruption: Trump’s wealth increased $3 to $4 billion dollars during his second term so far. Corruption? No comment. “Trump has pledged a $5,000 dividend to every American adult if Republicans retain control of Congress in November’s midterm elections, prompting questions about how the benefit would work, whether it is legal and where the funds would come from.” Washington Post 9/10/2026. Amazingly Trump publicly proclaims this bribery.

The Washington Post reported on 9/12/2026:

“Democrats hope to retake control of the House, and to use that power to probe Trump’s business ventures, legal maneuvers and policies…. ‘There’s so much corruption and grift that it’s going to take the entire House on the Democratic side to do investigations appropriately,’ Rep. Robert Garcia (D-California), who would probably lead investigations as chair the Oversight Committee in a Democratic-held House….

“Trump family enrichment…

“Handouts to supporters…

“Construction projects…

“Immigration enforcement…

“Prosecutions of Trump’s political enemies…

“Institutional pressure campaigns.”

https://www.washingtonpost.com/politics/2026/09/12/house-democrats-plan-sweeping-trump-investigations-if-they-win-november

It goes without saying that Trump does not support many of the US Constitution based principles I support. If I am right, as I am sure I am, that adhering to the principles of our Constitution is an important part of the foundation of our flourishing, Trump’s abuses of those principles will have the opposite effect. His disregard for the rule of law, his expansion of the powers of government to coerce us, and his disregard and flaunting international agreements and relationships will turn the US into a society of uncertain rights heading in uncertain directions depending on who is leading it at the time.

To give Tom Friedman the last word from his NYT article sited above:

“A year ago, I heard one of our former presidents privately observe that we can survive Trump’s second term as long as our institutions remain intact. Well, unfortunately, they have not. Who would argue today that the Justice Department, which has been turned into a personal legal weapon of the president, is intact, that the Department of Health and Human Services is intact, that the Pentagon is intact, that the Centers for Disease Control and Prevention is intact or that the Federal Communications Commission, which is now run by a Trump-appointed hack who acts as combined government censor and minister of propaganda, is intact?”

Econ 101: Interest rates

President Trump wants the Federal Reserve to lower interest rates thinking that that would reduce the interest the Federal Government pays in interest on its debt, which this last year was $1.13 trillion (yes trillion). Prior to 2008, the Fed’s policy interest rate—the so called Fed funds rate—was the overnight rate on overnight (i.e. one day) loans between banks. I will skip how the Fed determines (brings about in the market) that rate. Since 2008, when the Fed started to pay interest on bank reserves (deposits at Federal Reserve Banks), the Fed’s policy rate has been the rate paid on bank reserves.

The interest rates paid on longer (than overnight) loans (e.g., one, two, ten-year bonds) are related to the overnight rate because rolling over overnight loans for ten years is an alternative to a ten-year bond. This note explains that relationship.

The interest rate on, say, a one-year bond reflects what the market (lenders and borrowers) expects the one-day rate to be each day over that period. That, in turn, depends on what the market expects the “real” rate to be plus the rate of inflation. Market rates reflect the real rate plus the inflation rate. If inflation increase, other things equal, market interest rates increase.

So, the interest rate on a ten-year bond will reflect what the market expects the overnight rate to be over the next ten years, which reflects the expected real rate and the expected inflation rate over that period. So what happens to interest rates (say the ten-year bond rate) when the Fed lowers its policy rate as President Trump wants? It depends primarily on what that does to the market’s expectation of inflation over the relevant future period.

On Wednesday Dec 10 the Fed reduced its policy rate .25% to 3.50 to 3.75%. On that day the ten-year bond rate fell from 4.19% the day before to 4.15% but by Friday (two days later) had returned to 4.18% In short the ten year Treasury bond rate is essentially unchanged by the quarter percent drop in the Fed’s policy rate. Why? Because the market expects the drop in the overnight rate to be largely offset by a slight increase in inflation over the next ten years.

If the Fed is correct that lowering its policy rate is appropriate for continuing the reduction of inflation to its 2% target, then the ten-year rate will fall as well. Clearly an excessive cut in the policy rate (one that increases the expected rate of inflation) will increase longer term interest rates rather than lower them. Class dismissed.

Econ 101: Interest Rates –Another Go

A month ago I reviewed the role of the Federal Reserve’s policy interest rate: https://wcoats.blog/2025/07/17/the-feds-policy-interest-rate/   The subject is so important and seemingly misunderstand by many that I am reviewing it again here.

Interest rates balance the supply and demand for financial assets. Households and firms that save some of their incomes demand financial assets. Households and firms that borrow to invest in productive capital or for whatever reason supply those assets (mortgages, bonds, etc.). Rates on longer term assets reflect the expected value of the short-term rates over that period. Thus the interest rate on a ten year bond reflects the expected value of one year bills over the ten year period plus a small risk premium because the string of short term loans are an alternative to the single fixed rate ten year loan.

The policy interest rate of the Federal Reserve is set by the Fed to pursue its objective of stable money (defined by the Fed as 2% inflation) and high employment (the Fed’s dual mandate imposed by Congress).

This note reviews the Fed’s policy rate. Since 2008 the Fed’s policy rate has been the rate it pays banks for the money they keep on deposit with a Federal Reserve Bank (of which there are twelve but that is unimportant for understanding the role of the policy rate), which on Aug 6 amounted to $3,332 billion. This rate is known as the Interest on Reserve Balances (IORB).

If the IORB matches comparable market rates for equally liquid funds (the so-called neutral rate), banks will maintain their existing Fed deposits. If it is set above that level, banks will have a financial incentive to place more money with the Fed, i.e. lend less in the market, thus creating fewer deposits and reducing the money supply. If the IORB is set lower than the neutral rate, banks will draw down their Fed deposits to lend more in the market thus increasing deposits and the money supply.

The IORB is currently (Aug 6) 4.5%, where it has remained since Dec 2024. At this rate broad money (M2=bank demand, time and savings deposits) has grown between 4% and 5% (from a year earlier) over the last three months. Given that inflation remains above the Fed’s target of 2% it would not seem wise to lower the policy rate and increase the rate of monetary growth especially as higher tariffs go into effect.

To repeat from earlier blogs (because it is so important), if markets anticipate higher inflation in the future (next few years), market interest rates on longer term debt will increase to preserve their real (inflation adjusted) value. Lowering the Fed’s policy rate prematurely would increase the market’s anticipation of higher inflation rates in the future. In other word, lowering the IORB now is likely to increase interest rates on longer term debt. Leave the Fed alone to do its job as best it can.

The Fed’s policy interest rate

Among the things our protectionist, isolationist President fails to understand correctly is the role of the Federal Reserve’s policy rate. He wants interest rates to be lower and thinks that the Fed can cause that by lowering its policy rate. That rate used to be the overnight money market rate. If the Fed lowered that target it would supply more money (bank deposits at one of the twelve Federal Reserve Banks) to banks and thus the interbank money market for managing bank liquidity by buying government securities from banks. If banks’ liquidity (“reserves”) is increased, their demand to borrow in the interbank money market will be reduced and thus the interest rate prevailing in that market will be reduced. Thus, raising or lowering the Fed’s policy rate (and the consequent change in base –Fed reserve—money) was the instrument by which the Fed controlled the money supply (its own base money and the more relevant boarder bank money—M1, M2, etc.)

If you are into this subject, you will already understand what money is and where it comes from. If you would like a refresher read this: https://wcoats.blog/2024/11/08/econ-101-money/  

The above description of the policy rate was applicable until 2008 when banks held minimal reserves (or excess reserves when there was still a minimum reserve requirement) at the Fed. But in response to the financial crisis in 2008 when the Fed purchased huge quantities of government debt (and mortgage-backed securities), the Fed began to pay banks interest on their now very large deposits at the Fed to keep them from lending them in the market and thus expanding the money supply excessively. So, the relevant Fed policy rate now is the rate it pays on banks’ reserves at the Fed, the so-called Interest on Reserve Balances (IORB).

As with the policy rate in the old regime, the IORB is the instrument by which the Fed now controls the growth in the money supply. When the IORB is reduced below prevailing overnight market rates banks will draw down their Fed deposits to lend at the higher market rate thus increasing money growth.

Interest rates in the market are determined in and by the supply and demand for credit in the market. If the Fed lowers its IORB it will increase the growth rate of dollars. The Fed will do so when it judges that appropriate for achieving its inflation rate target of 2.0 percent. The twelve-month inflation rate in May was 2.4% and rose to 2.7% in June. The Fed decided not to lower the rate further at this time. Doing so could well lead market participants to expect higher inflation in the future, which would raise (not lower) market rates for say 10 year Treasury bills.

Current Fed policy seems appropriate to me. It adheres to an inflation forecast targeting regime that has become popular in recent years in major central banks. But it reacted by raising rates too slowly in response to the surge in inflation in 2021-2 during the Covid pandemic. Inflation reached 9% in mid 2022. A better system is to return control of the money supply to the public that can buy and redeem dollars at a fixed price for a hard anchor (such as a gold standard). I laid this out in the following blog: https://wcoats.blog/2022/06/06/econ-101-the-value-of-money/

Their Turkey and Ours

“Recep Tayyip Erdogan believes high interest rates are the cause of inflation, not the remedy for it”  The Economist May 19, 2018 “How-turkey-fell-from-investment-darling-to-junk-rated-emerging-market”

During the 1990s the inflation rate in Turkey averaged around 80% per annum varying between 60% and 105%.  Over that period interest rates on its 3-month treasury bills averaged about 30% above the inflation rate reaching almost 150% in 1996.  The economy grew rapidly in real terms with real GDP growth averaging 8% per annum between 1995-7.  But growth depended heavily on borrowing abroad in foreign currencies.  Banks were poorly regulated, and heavily exposed to foreign exchange risk and to government debt.  Obviously, Turkey’s nominal exchange rate depreciated at about the same rate as its inflation rate in order to preserve a stable real exchange rate.

In the wake of the Asian and Russian debt crises in 1997 and 1998 foreign investors became more risk averse and capital inflows into Turkey were reduced sharply slowing down economic growth from 7.5% in 1997 to 2.5% in 1998.  A serious earthquake in Turkey’s industrial heartland in August 1999 further deteriorated Turkey’s economic performance.  The combined impact of the two pushed the economy into a deep recession, shrinking GDP by 3.6% in 1999.

With support from the International Monetary Fund (IMF) in 1999-2003 the Turkish government reigned in its spending and monetary growth and reduced its inflation rate to 10% by 2004. I was a member of the IMF’s Turkey team at that time and remember the long sleepless nights very well. Turkey’s interest rates followed inflation down and, in fact, its real interest rates (nominal interest rate minus its inflation rate) fell from 30% to negative rates as the economy stabilized. During this transition, a number of state owned enterprises were privatized, 18 insolvent banks were intervened, and debt and the financial sector were restructured and strengthened.  Within a few (rough) years the economy was growing rapidly with low inflation and low interest rates.  In 2017 real GDP grew 7.0% though inflation had crept back up to 11.1%.

Following Turkey’s and the rest of the world’s recession in 2009 the country reverted back to its bad old ways.  “Recep Tayyip Erdogan signed a decree easing access to foreign-exchange loans for Turkish companies.  The new rules lifted restrictions that barred companies without revenue in hard currencies from doing such borrowing—as long as the loans exceeded $5 million.”  How Erdogan’s push for endless growth brought Turkey to the Brink

Erdogan observed the low interest rates, low inflation, and high growth and apparently concluded that low interest rates caused low inflation rather than the other way around. Every economist knows that interest rates incorporate the market’s expectation of inflation over the period of a loan in order to establish a market clearing real rate of interest.  In 1996 when a borrower was willing to pay 130% interest and a lender was not willing to accept less it was because they expected 80% to 90% inflation per annum over the life of the loan.  The very high real rate (130% – 80% = 50%) reflects the risk premium of getting it wrong.

Central banks can, if inflation expectations adjust slowly, push real rates down temporarily by lowering nominal market rates below their equilibrium rate.  Doing so, however, increases the rate at which the money supply grows eventually increasing inflation and forcing nominal interest rates higher than they would otherwise have been.

Under political pressure from Erdogan, the central bank of Turkey has kept interest rates lower (and thus money supply growth greater) than are consistent with its inflation target of 5%.  In the last few years inflation has drifted up reaching 11.1% in 2017.  Markets have grown uneasy about the economic situation in Turkey and when the Central Bank failed to increase its policy interest rate last month from 17.75% investors began selling off Turkish bonds and withdrawing funds from the country.  Its exchange rate plummeted.  From January of this year the Turkish lira depreciated from 11.7 per dollar to 16 lira/USD at the beginning of July and to 21 lira/USD on the 22ndof August. Erdogan’s wrong-headed misunderstanding of the role of interest rates is pushing Turkey over the precipice of bankruptcy.

Meanwhile here in the United States, President Trump apparently attended the same school as Erdogan. After breaking a several decades old protocol against commenting on or interfering with the Federal Reserve’s monetary policy when he stated last month that he didn’t want to see the Fed increase its policy interest rate, he did it again a few days ago. “Trump-escalates-attacks-federal-reserve”  Trump’s advice is wrong. The Federal Reserve needs to continue raising its policy rate back toward normal levels (3% to 4%) before inflation momentum becomes any stronger. Real interest rates are still negative (less than the inflation rate).  The Fed should have started increasing rates several years earlier.

Trump and interest rates

There seems to be no norm or conventional wisdom that President Trump is not willing to overturn. Following Fed Chairman Powell’s congressional testimony Tuesday in which he confirmed the Fed’s intention to continue its gradual increase in its policy interest rate, Trump said: “I don’t like all of this work that we’re putting into the economy and then I see rates going up.”  The statement is wrong on multiple accounts.

The economy is now fully employed and interest rates probably should have been returned to normal some time ago.  The alarming current and projected fiscal deficits of the federal government will force interest rates and trade deficits still higher.  This is Trump’s fault– not Powell’s.  “Who pays uncle Sam’s deficits?”  The major policies threatening to undermine the economic boost from tax and regulatory reforms are Trump’s trade policies (pulling out of the Trans Pacific Partnership, stalling and threatening U.S. withdrawal from NAFTA, Steel and Aluminum tariffs (taxes) on our friends in Canada, Mexico and the EU, and a deepening trade war with China).  Leaving the TPP  Resisting the interest rate increases needed to keep inflation at 2% would increase the most regressive tax around (inflation).

But Presidential interference in implementing monetary policy, as is now being undertaken by President Erdoğan in Turkey, violates a long established principle and practice of central bank independence.  Historically, inflation, which falls heaviest on the poor and undermines economic efficiency and growth, has resulted primarily from governments turning to their central banks for financing in misguided and ultimately futile efforts to keep interest rates (government borrowing costs) low.

President Trump can save the economic benefits of his tax and regulatory reforms by rejoining the TPP, rapidly concluding amendments to NAFTA that improve productive efficiency and fairness, dropping the steel and aluminum tariffs, ending the trade war with China, joining with the EU, Canada, Japan and others to bring China into compliance with the rules of a strengthened WTO, and establishing a fiscal budget surplus primarily through entitlement reform.