Editors at National Review Online assess one of President Donald Trump’s latest feuds.
If Donald Trump is upset about higher interest rates, he should stop doing just about everything he can to undermine the U.S. economy in the eyes of the world. As the U.S. becomes a riskier place to do business because of tariffs and fiscal uncertainty, and the independence of the central bank comes under threat from the president, people will demand higher yields to make buying U.S. sovereign debt worth their while.
Maybe you think Trump’s trade policy has merit or the Federal Reserve needs to be brought more firmly under the president’s control. That’s a separate question from how real investors with real money in the real world are really reacting to Trump’s decisions. Their verdict is clear: They don’t like it, they’re going to keep saying so with their money as long as the president doesn’t change course, and that has real negative consequences for Americans.
The stock market is down, and that’s bad. Worse is the simultaneous decline in the value of the dollar and the price of U.S. government bonds. That’s more akin to what happens in poor countries facing economic crises, not in the richest country in the history of the world.
Even during the Great Recession, which began with a financial crisis originating in the U.S., investors worldwide fled to the safety of U.S. government bonds. They fled to the safety of the U.S. dollar in currency markets. The U.S. position was so rock-solid that even the worst downturn since the Great Depression couldn’t shake it.
Now, the story is different. And part of the reason why is a president who feels unconstrained by constitutional, statutory, or economic arguments against exerting unilateral power whenever he feels moved to do so.
It would be one thing if Trump had a fleshed-out economic plan and was sticking to it. Aside from any questions of the merits of his decisions, though, investors first and foremost have seen uncertainty and lack of credibility.
