Trump the economist gets this one right

It's not every day that we agree with Donald Trump. The self-described creator of the 'greatest economy in US history' has made his stand on interest rates clear ahead of a US Fed meeting that's expected to consider raising them. The US, Trump has argued with impeccable economic acuity, must have the world's lowest interest rates because it has the best credit. He takes this position into policy space by threatening to stop trading with countries that run up surpluses with the US. Again, he has a point. Low interest rates help exporting economies to keep their currencies artificially devalued. They also aid exporters in controlling costs and improving cash flows. But the reality confronting the Fed is shared by central banks across the world: Trump's tariffs, and his war on Iran, have stoked inflation. Interest rate cuts are not on the table any more, anywhere.

Trump, who faces plummeting ratings due to inflation ahead of November's midterms, could get some traction on interest rates in a roundabout way. He could prevail on the Fed after Jerome Powell's exit to go easy on interest rates as other central banks turn hawkish. It won't achieve the lowest interest rates for the US. But it will close the gap with its trading partners. That should give the US more elbow room in tariff negotiations. But suppressed interest rates risk exporting US inflation to the rest of the world. Central banks outside the US would have to factor this into their interest rate calculations.

Also read: Xi's plan, with more BRICS characteristics


The EU, China, Japan and South Korea have interest rates lower than the US. They face significantly higher inflationary pressure from persistently high energy prices. Canada and Mexico are signalling an end of easy money. Republicans typically don't blame inflation on interest rates. They attribute it to government overspending. Trump's foreign policy is expensive. As is the mounting cost of the national debt that crossed $40 tn in August. The Fed's experience with inflation is that it costs more to fix it later. Trump's brand of economics needs more takers.