Calls Intensify for Halting Interest Rate Hikes

By Clint Siegner, Money Metals Exchange

President Donald Trump isn’t thrilled about Jerome Powell’s stewardship of the dollar and interest rates. He would like the central bank’s help in keeping the economic party going, but so far the Fed Chair just won’t play ball. Now the Wall Street Journal has joined the President’s call for some renewed stimulus.

If officials at the Fed want to pause or even reverse course on raising interest rates, they have cover to do so. As yet, however, the consensus remains unshaken. The markets are counting on another rate hike following next month’s FOMC meeting.

Whether or not the president can elicit assistance from the Fed, or the Wall Street banks which own it, has been a bit of an open question. Trump can criticize and cajole.

In theory, Trump should even be able to fire Jerome Powell and replace him with someone more cooperative. Federal Reserve Board members, including the chairperson, are appointed by the president and confirmed by the senate.

But such a move would create quite a stir. It has never been done and the President’s opponents could even attempt to challenge him in court for interfering with the central bank’s supposed independence.

Fed May Take New Steps to Prop Up the Stalling Economy

The FOMC might decide to play ball with Trump and start juicing the economy. The equity and real estate markets might respond with another debt fueled sprint higher. However, the truth is that government and private-sector borrowing crossed the Rubicon of what is sustainable long ago.

In less than 10 years the Federal Government will spend more on interest payments than it does on Defense, Medicaid, and children’s programs combined. Deficits seem to have taken on a life of their own. They are spiking higher now despite the U.S. economy being strong and tax collection at record highs.

The U.S. borrows enormous sums just to pay interest on existing debt. There is no political will to reduce the federal budget by the 25% or more required to simply balance expenditures with receipts.

The spiral toward the hyperinflationary end of this cycle cannot be stopped. Fed officials have spent decades promoting unlimited borrowing and those horses aren’t coming back to the barn.

Debt is the mother of all bubbles. It will pop when the public finally realizes how hopelessly insolvent the government is.

What makes the weeks and months ahead interesting is that it looks like the moment of truth just might be drawing near.

Nowadays when the FOMC hikes rates, the repercussions are more immediate and obvious. Yields on the 10-year Treasury note keep stalling at roughly 3.25%. That is looking like a key level. In recent weeks, the equity markets have sold off hard whenever yields have approached 3.25%.

The real estate market is beginning to show some cracks with mortgage rates now 2 percentage points higher than they were two years ago.

The economy’s addiction to low interest rates is real. Trump and the Wall Street Journal editorial staff know it. Let’s just see what happens if the Fed hikes rates again next month.

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.