President Donald Trump has desperately tried to link the economy to his presidency and frankly, I don’t blame him. The unemployment rate is down to 3.7 percent, a 48-year low, and the Dow Jones Industrial Average has grown remarkably quickly in the time since Trump’s election. Trump boasts that he has “accomplished an economic turnaround of historic proportions.” Yet, his persistent bragging is just one way that Trump tries to communicate to his voting base that his presidency is solely and fully responsible for the growth in the economy.
However, there are a number of well-reported indications that the economic growth towards the end of Barack Obama’s presidency seems to have been the catalyst for much larger growth today. Research suggests that the economic prosperity is one of the key issues among voters. In fact, many even credit a president in power for its growth and blame him for its decline. Therefore, it can be inferred that Trump’s constant advertisement of economic growth during his presidency is preparing him for his reelection campaign.
But the economy may not be as strong as Trump has led voters to believe. On Oct. 9, markets lurched and faltered, with the Dow falling over 800 points. Trump, looking for some way to distance himself from this drop and avoid the consequences associated with a sinking economy, found an easy target, the Federal Reserve. He even dubbed the agency as “loco,” a highly unusual move for any president. The Fed is, in some ways, a sitting duck. Its board of governors has unilateral, and mostly unchecked, control over the nation’s monetary policy; this includes jurisdiction over interest rates which are perceived to be inextricably linked to fluctuations in the economy.
Additionally, because few Americans understand the way the Fed works, misperceptions about its sway on the economy arise in abundance. For these reasons, the Fed often bears the brunt of criticism for drops in the economy, especially when it moves to increase interest rates, an action it took last week that prompted the attacks from the president.
Trump isn’t the first president to criticize the Fed; however, he is the first to do so in a way that is unsophisticated and inappropriate. Trump has made it a habit to cast aspersions on parts of government that do things he disagrees with. He has repeatedly vilified judges and the Justice Department for making rulings that diminish his power or opening investigations into his administration and cabinet officials. What makes this new tactic so unique and worrisome is that this is the first time Trump has taken significant steps to call into question the legitimacy of the Federal Reserve.
His criticism largely stems from the Fed’s hiking of interest rates from 2 percent to 2.25 percent. The interest rate is incredibly important: as it goes up, investment in safer avenues (like banks or the federal government) increases. Yet, when it is lowered, the economy tends to grow rapidly and riskier bets are made, which of course sometimes results in devastating consequences. Obviously, this number has direct effects on the economy. After the 2008 recession the Fed lowered interest rates to near zero percent, propelling investment and propping up the economy to prevent it from slipping even further into the red.
As the economy improves over time, many economists argue that increasing interest rates can help slow and make long-term growth more manageable. Naturally with such great return on investment in the current market, it is only logical that interest rates would rise to take advantage of that success. Notwithstanding the effects of the interest rate on the market, economists argue that the recent drop in the market is likely attributable to a correction that brought prices closer to their actual, rather than perceived, values.
Economists are divided on the continuing outcomes of the market’s downward tumble. But many well-regarded analysts agree that Trump made it much less probable that the Fed would lower its rates in response, as that would cast doubt on its independence and reliability. Yet again, Trump’s political bluntness has made a mockery of presidential norms, provided him with no positive outcome, and serves as indicative of his ineptitude and incompetence as a leader.