Trump's crazy tariffs have outfoxed the Fed

These shifts in monetary and fiscal theory are a huge stroke of luck for populists in power. (I refuse to countenance the disgraceful idea that they are in fact a rationalization of the central bankers’ rapidly dwindling political independence.) For whatever reason, the Federal Open Markets Committee has become the Committee to Reelect Trump. This isn’t because Trump has successfully brow-beaten the Fed staff with his tweets, or so they insist. It’s because their estimates of the “natural rate of interest” are just really, really low.

And it’s a similar story in Britain, Europe, and Brazil.

Give the populists their due. They intuitively knew that there was something crazy (in the non-fox-like sense) about raising interest rates and trying to balance budgets in the post-crisis world, just as they understood that voters had tired of ever freer trade and rising immigration rates. It was the eggheads (myself among them, I admit) who wanted sound money and austerity.

Could anything break this trend, whereby falling interest rates and painless deficits help populists stay in power? One answer I can think of is a major war, which has tended to be the thing, historically, that drives inflation expectations and interest rates upward. But that, too, is something the populists have pretty much ruled out. They saw what became of another set of eggheads — the neoconservatives — when they decided to revive war as an instrument of policy after 9/11.

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