This week, St. Louis Federal Reserve President James Bullard indicated in a speech that President-elect Donald Trump’s economic plans are more about 2018-19, because “snapping your fingers,” he said, can’t produce instant change.
The problem with most of the Fed’s presidents, and the Federal Reserve itself, is that they live in an insulated bubble. It is probably one of the deadliest combinations—trying to live in such a place and predict anything that might happen in the real world.
This scenario originates with a combination of the out-of-touch, irrelevant bubble that rests over Washington, D.C., and the even more out-of-touch bubble that surrounds the world of academia.
In one sense, they are right. Make no mistake about it: Trump’s policies for economic growth will take years before they actually go into effect and start to filter through the economy.
But remember, this is a Federal Reserve that hasn’t had its ear to Main Street in about 60 years. They have totally discounted the impact on the economy from the mere mention of things like a pro-growth environment, sound fiscal policy and tax reform, as well as how those ideals will immediately unleash the unfettered spirits of businesses (small and large alike) and the consumers who want to become engaged in the economy.
Not only will this unleash pent-up emotions and desires in regards to our economy, but there are also huge amounts of money on the sidelines—money that CEOs and other decision-makers are anxious to put to work for their companies, for the consumer and for growing global demand.
Add to that the notion that, for the first time in 10 years, we could have sound fiscal policies coming from Capitol Hill—silly things like a budget, a real debt ceiling, cost-cutting efforts throughout departments of the government, and accountability in spending, from the Defense Department on down.
Lack of Understanding
Of course, the Federal Reserve’s leaders seem incapable of understanding regulatory burdens that are no longer a moving target and will become more rational and thus have a dramatic impact on the way corporate America does business, not to mention the profitability, efficiency and effectiveness of those corporations.
And even if the Fed believes all these things are good for the economy, they certainly cannot wrap their arms around the notion that any of this could improve the economy prior to all these new rules, regulations and tax policies being put into place as part of a new, pro-growth environment. Remember, there is no textbook scenario to evaluate projections of economic policies.
President Bullard did say one thing that is fairly accurate—namely, that the low unemployment rate will not necessarily boost inflation. This was Bullard’s way of acknowledging the fact that our low unemployment rate is anything but full employment.
I see this as an acknowledgment of the smoke and mirrors created by President Obama’s “new normal” that took us back 40 years in the labor participation rate. Yet, they pretend this is unimportant in the 21st century.
Even though the Fed themselves won’t acknowledge this new normal, they certainly know and understand the reality of it. Out here on Main Street, we’ve known the truth for a long time.
That being said—and as one of the biggest critics of the Obama administration, a constant critic of the economically inept Congress and a huge critic of the irrelevant Federal Reserve—I must admit that I agree with Janet Yellen’s comments this week indicating that a key part of the Dodd-Frank law should not be scrapped: the capital requirements and enhanced supervision for big banks. I have agreed with most of Donald Trump’s advisers, but the wisdom of keeping these two parts of this law intact is needed, so on that point alone, I will agree with the Fed.