Peter Morici Blog | Why A Fed Interest Rate Hike Would Help, Not Hurt Trump | Talkmarkets
Professor Emeritus, Robert H. Smith School of Business, University of Maryland

Professor Peter Morici is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in ... more

Why A Fed Interest Rate Hike Would Help, Not Hurt Trump

Date: Monday, December 12, 2016 3:21 PM EDT

The Federal Reserve would do Donald Trump and his supporters a favor by raising interest rates.

President Obama’s economy—the dearth of decent paying jobs in rust belt communities and stagnant living standardshelped Trump to capture the White House.  

Obama boosted taxes on small businesses and investorsimposed burdensome regulations and worked against U.S.-based manufacturers by appeasing China on trade and currency manipulation.He let the nation’s transportation systems and schools fall into terrible disrepair as he steered public resources into ill-conceived solar energy projects and the like, and cajoled states to divert money into health care programs made more expensive by the Affordable Care Act.

The consequences are all around us. Although consumers have been spending briskly for several yearstoo much of what they buy is importedAmerican exports are too expensive and shutting factories to leave for Mexico or Asia has become the business strategy of choice.

The Federal Reserve enabled Obama’s follies by keeping interest rates near zero for 8 years and creating an asset price boom.

Business spending on new equipment is in the dumps and productivity improvements are lackluster.  Small business startups languish near record lows and jobs creation has been about half the pace accomplished during the Reagan recovery.

The Federal Reserve enabled Obama’s follies by keeping interest rates near zero for 8 years and creating an asset price boom.

Low interest rates pushed investors from CDs and money markets into riskier bonds and stocks—pushing prices for both higher. Cheap mortgages pushed up commercial real estate and agricultural land values and permitted home prices to recover to pre-recession levels.

Consumers feel richer and spend more than their stagnant paychecks should allow, and this permitted Obama’s economy to manage a historically weak recovery in spite of his anti-growth policies.

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