President Trump has declared his forthcoming presidency will be “A Golden Age.” Could The Federal Reserve be the poison pill which derails it?
Alex Jones led this morning with this CNN story: “Fed hits pause on interest rate cuts amid Trump’s flurry of economic plans.” It’s definitely concerning to me. Traditional wisdom on Wall Street says “don’t bet against The Fed.” While Kamala was in office, the Fed indicated that it would be continuing to lower interest rates. This is typically seen as being good for business, particularly small cap growth stocks, which account for most of the NASDAQ.
Now Jerome Powell, the Chairman of The Fed and a member of its Board of Governors is indicating that he is pausing interest rate cuts. This could be seen as being bad for the stock market. Higher interest rates mean higher costs for businesses. Higher interest rates make it difficult for businesses to expand, and higher interest rates mean less profits for the shareholders.
President Trump is certainly not the first president to see America’s central banks as an enemy. Thomas Jefferson was a notorious enemy of the First Bank of America. He actually was able to rid our country of it. Andrew Jackson, one of my favorite presidents, rid us of the Second Bank of America. It took him two terms to do it, but he was tenacious, seeing it as the enemy of the people that it was.
There is an interesting story about how the Second Bank of America came to an end. It involves an undercover journalist, though not by design. As Andrew Jackson was fighting the bank during his second term, a journalist happened to be riding on the same coach as one of the bankers. The banker was joking around saying that before Andrew Jackson was able to put the bank out of business, the bank would put the United States out of business. The journalist took careful notes during the ride, and later wrote a story about it. The United States public and its representative Congress went out of their minds when they read it, and Jackson was finally able to get his way with the legislation necessary to put The Second Bank of America out of business.
This “Third Bank of America,” the Federal Reserve, is a hybrid organization consisting of a set of regional banks that operate autonomously like private entities, and a Board of Governors in Washington DC that is comprised of federal employees. Elon Musk this week pointed out that the Federal Reserve has way too many people on the payroll. One might say that any more that zero is too many!
Libertarian Ron Paul, one of my favorite people, has always made an enemy of the Federal Reserve and had them in his crosshairs. It’s ironic that he often lampooned them at CPAC meetings. Then Donald Trump would take the stage and lampoon Ron Paul. We now we find ourselves in a position where Ron Paul’s former enemy, has become the enemy of Donald Trump! Strange times indeed.
Members of the Board of Governors serve 14 year terms (WHAT?!) after appointment by the President and confirmation by the Senate. The Chairman of the Federal Reserve, who is one of the board members, serves a four-year term but may be reappointed. Jerome Powell does not come up for reappointment as Chairman until May of 2026. Until then I think we are pretty much stuck with him. Even after that he will continue to serve out his 14 year term on the board until 2028. If he is indeed an enemy of the Trump agenda, this is going to be a real problem.
High interest rates will be the enemy of the Trump agenda. If Jerome Powell is politically motivated to make a disaster of the American economy, he can certainly do it by pulling the levers he has at his disposal. This is worrisome.
Will the Federal Reserve become the enemy of President Trump? Will he make it his mission, as it was for Ron Paul, to end the Fed? We cannot know the institutions that profit from lending money to the United States. This is inherently wrong. The Federal Reserve is the sole course for lending money to the United States of America. If Trump takes them on and does it successfully, he will be one of only three presidents to rid us of a central bank. Get your popcorn ready.