8/15/2017 Trump's biggest economic problem could be Janet Yellencommentary

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The real 'deep state' sabotage

is happening at the Fed
Matthew Yglesias
Published 29 Mins Ago | Updated 13 Mins Ago

by Taboola

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'Get the facts
straight' on Merck
CEO Ken Frazier and
drug pricing
Cramers shocking
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caused him to gulp
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Federal Reserve Board Chairwoman Janet Yellen
China hands Trump a
win on North Korea
Trump administration officials are notorious for their suspicion that a crisis
"deep state" of career military, intelligence, diplomatic, or civil service Goldman Sachs says
professionals is seeking to sabotage their work. But for a clearer bitcoin may rise
example of sabotage albeit without much in the way of a conspiracy about $500 more,
Trump would do well to cast his gaze at the Federal Reserve, which, before losing half its
dating back to before his inauguration, has been waging war on an value
inflationary menace that appears not to exist. Fracking boom: US
shale oil output to
Trump's economy is caught in the crossfire, and growing slower top 6 million barrels a
because of it. day in August and
September
With the unemployment rate now low by historical standards, the Fed is
steadily raising interest rates hiking at the beginning of the year and MOST POPULAR
then again at its June meeting.
Trump retweets man
1. calling him a fascist
More from Vox:
Charlottesville protests: a quick guide to the violent clashes this and a 'Trump train'
smashing into a CNN
weekend
logo
Donald Trump refuses to name the problem of white supremacist
violence
Goldman Sachs says
We need to stop acting like Trump isn't pandering to white 2. bitcoin may rise
supremacists about $500 more,
before losing half its
Yet the inflation numbers released by the Bureau of Labor Statistics on
value
Friday show that over the past year, the Consumer Price Index has risen
by just 1.7 percent. The so-called "core" CPI that many observers
The exodus is on:
believe is more predictive of future inflation conveniently also 3. Intel CEO becomes
increased by just 1.7 percent. The Fed, allegedly, is targeting an inflation third to quit Trump's
rate of 2 percent. As you probably know, 2 percent is higher than 1.7 manufacturing
percent. As you may not know, the Fed's inflation index of choice the council in less than a
day

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8/15/2017 Trump's biggest economic problem could be Janet Yellencommentary
Dick's Sporting
Personal Consumption Expenditure Deflator normally rises about 0.5
percentage points faster than CPI over the course of the year.
4. Goods shares crater
on disappointing
So inflation isn't just below the Fed's danger zone, it's well below it. Yet sales, poor outlook
the central bank is working to slow the economy. And Trump's for the year
ideological field of vision has been so narrowed by the conservative
Heres what happens
movement that he doesn't even seem to see that an alternative course
5. if you dont pay your
of action is possible.
student loans
The Fed seems paranoid about excessive job
creation
After being excessively critical of US economic performance during
President Obama's second term, Trump has flipped recently to being
excessively sanguine about job creation on his watch. He brags that the
economy has added a million jobs during his first half-year in office,
which is true, but it's a slower pace of job creation than we enjoyed in
2016, 2015, 2014, 2013, or 2012.

The slowdown to be clear is not Trump's fault. It's the Fed's.

After years of holding short-term interest rates at essentially zero, the

Fed raised rates in December 2015 and then again in December 2016.
And since the economy keeps growing, the Fed keeps raising rates
doing so twice so far this year and clearly signaling a desire to keep
hiking as long as the economy keeps adding jobs.

But why? Low interest rates aren't a panacea for all economic problems.
But in general, if companies, homebuyers, and government agencies
can borrow money cheaply, that's a nice state of affairs. It means it's
affordable for firms, individuals, and governments to make durable
investments in business equipment, buildings, and infrastructure that
add to long-term prosperity while creating short-term jobs. The reason
the Fed can't always keep printing money to keep rates low is that
inflation might get out of control. But inflation is not currently out of
control.

Indeed, it's not even close to being out of control. A calm, measured
approach might be to just leave rates where they are unless and until
inflation gets above the Fed's target. If and when that happens, then
rates can go up. That might mean a year or so of somewhat above-
target inflation, but we've lived through years of below-target inflation,
so a small error in the other direction seems like a small price to pay for
a chance at widespread job creation.

Trump has more options than he knows

The current Fed chair, Janet Yellen, was put in office by Barack Obama,
and so were most of her colleagues on the Federal Reserve Board of
Governors. So one might think they really are trying to sabotage Trump.

On the other hand, easier money in 2016 would have given Hillary
Clinton a boost in the election and possibly kept Trump out of office in
the first place.

It seems much more likely that Yellen and company are simply making a
genuine ideological error. But what's fascinating is that Trump doesn't
see it that way. Conservatives spent most of the Obama years
castigating Yellen and her predecessor, Ben Bernanke, for excessively
inflationary monetary policy. The fact that inflation kept not showing
up didn't deter them.

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8/15/2017 Trump's biggest economic problem could be Janet Yellencommentary
Oddly, Trump seems totally unaware that a more growth-oriented
Federal Reserve is even an option.

In an interview with the Wall Street Journal, Trump contemplates two

possibilities for when Yellen's term expands. One is keeping her in
office, because "I'd like to see rates stay low" and "she's historically
been a low-interest-rate person." He also considers elevating his
National Economic Council Chair Gary Cohn, whom he says he has
"great respect" for and thinks is doing "a very good job" in his current
role, but under whose watch he believes "interest rates will be moving
up" at a somewhat faster pace.

What he really needs are more people like Minneapolis Federal Reserve
President Neel Kashkari, who warns that the Fed is currently fighting
inflation based on a "ghost story." Kashkari is a Republican, but he's a
very lonely voice in conservative economic policy circles today. Most of
the people making the case for a more robust push for growth are on
the left often the far left, like the Roosevelt Institute's J.W. Mason.
But Trump has the correct instinct here, just an excessively narrow view
of the possibilities where he can't think of anyone more inclined to
favor low rates than Yellen. And as long as that keeps up,
Trumponomics is going to keep underperforming.

Commentary by Matt Yglesias, a writer at Vox. Follow him on Twitter

@mattyglesias.

For more insight from CNBC contributors, follow @CNBCopinion on

Twitter.

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