Trump wants lower interest rates.

​

Probably so he and his family can borrow cheap money to pump up the value of their crypto coins, then dump them and leave ordinary investors with the losses. Maybe he needs money to build a golf course in Dubai. Or wait, maybe that’s going to be a “gift.”

​

So call me cynical. He is also worried that his tariff chaos is going to slow production and the economy. Lower interest rates might encourage more spending and support the economy he is effectively tanking. Trump the autocrat wants the same power over interest rates that he has over tariffs.

 

So he is threatening the Federal Reserve and its chair, Jerome Powell. Firing Powell would be illegal; his term is not up, but this is Trump, right? And the Federal Reserve system was created to function independently of the president and Congress, on purpose, supposedly to insulate the Fed from political pressure.

 

The Fed was initially created in 1913 to stop the financial crises private banks kept causing. Bankers would make riskier and riskier loans to pump up profit, some loans would go bad, banks would collapse and production and jobs would disappear. The Fed, once created, then lent money to bail the banks (and depositors) out, and prevent depressions.

 

How to Make Money

​

That is a crucial understanding – the Federal Reserve Bank creates money, out of thin air. You write a check, you draw down your account. The Fed writes a check by changing some numbers on a computer – only based on their authority as the country’s central bank.

 

The Fed works through the private banking system. The Fed buys financial assets, Treasury bonds, or lately even mortgage-backed securities. That money winds up in the banking system, enabling banks to make loans. That’s more money in the economy. So the Fed enables banks to create our money supply.

 

The Humphrey-Hawkins law passed by Congress mandates that the Fed keep both inflation and unemployment low. The Fed does this by controlling short-term interest rates.

 

Those are often conflicting goals. Low interest rates (“easy money”) encourage borrowing and spending and so more jobs. But that also allows businesses to raise prices. High interest rates (“tight money”) have the opposite effect, slowing the economy.

 

This all sounds technical and value- neutral. That’s what the Fed and Wall Street and financial elites want us to think, that Fed policy is apolitical and technocratic.

 

Tell that to homeowners who lost their homes in the 2008 financial crisis while the Fed bailed out big insurance and bank corporations. Or to cardholders and small businesses now as the Powell Fed allows Capital One and Dis- cover to merge and raise their charges.

 

The Fed Is Not Independent

​

The Fed is run by bankers and Wall Street financiers, and influenced by what the corporate elite wants. High interest rates protect the assets of the financial elite from inflation, reducing their value. High rates also keep the economy from creating jobs, because then workers’ wages and willingness to organize might interfere with corporate profit.

 

But financial crisis might call for extended periods of low interest rates, to keep Wall Street afloat, as after 2008. As wages have stagnated or fallen for decades, low rates also encouraged families to run up debt to maintain living standards.

 

Whatever the capitalists in power need, the Fed tries to provide. Its

power is relatively easy to access for the wealthy, easier than going through the somewhat more democratic legislative process.

 

With Trump going after him, it is tempting to defend Powell and the Fed. That just puts us back into the space of bad choices. Neither represents what the working class needs. The Fed itself is soon likely to face both inflation and unemployment, a result of Trumpian chaos and uncertainty.

 

If leaving it to the Fed is not the answer, then what is? That also should be up for discussion. There are ideas out there. Regional and local public banks could loan money for public infrastructure, such as transit and clean energy. Postal banking would enable those shut out of banks to borrow and make transactions.

 

Put representatives of labor and communities on the decision-making bodies of the Fed. Use the Fed’s power to support states and cities and localities, to prevent the austerity budgets we are being battered with.

 

It is important for us all to debate, popularly, monetary policy, and not leave it to so-called experts. Money and interest rates are political; they are determined by government policies. We don’t need to be defending Powell from Trump’s attacks. That’s a choice between autocracy and the status quo.

 

Michael Righi is a retired economics professor and a member of the Retiree Advocate Editorial Board.