Chapter 1: What is the main topic discussed in this episode?
Well, howdy there, internet people. It's Belle again. So today, we're going to talk about Trump versus SCOTUS versus inflation versus the Fed. Trump is making his move to reshape the Federal Reserve, apparently in pursuit of his dreams of forcing lower interest rates. This puts him on a collision course with the Supreme Court of the United States.
If Trump is successful, he'll also likely get the exact opposite of what he wants, and you'll get higher inflation. Okay, so Trump is attempting to remove Federal Reserve Governor Lisa Cook. There's a high likelihood that this move is headed to the Supreme Court, a court that has already warned Trump against this back in May in a weird decision in Trump v. Wilcox.
Back then, the court went out of its way to say that Trump's power to hire and fire didn't really apply to the Fed because it, quote, is a uniquely structured quasi-private entity that follows in the distinct historical tradition of the first and second banks of the United States. Now Trump is spitting in the face of that warning and the court itself.
If the court allows this, conservative and liberal majorities won't matter anymore because Trump will have proven that he can ignore them even if they go out of their way to warn him against something in advance. Expect this to be a wild and high-stakes ride if this process moves forward.
Beyond the legal, political, and philosophical issues of silly concepts like judicial review, we need to talk about the realities of what happens if the Federal Reserve's independence is threatened.
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Chapter 2: How is Trump's influence on the Federal Reserve impacting inflation?
The realities of that really matter to you. Generally speaking, academic analysis has shown the trend is that the less independent a country's central bank is, the higher inflation goes. Aaron Klein, who is a senior fellow at the Brookings Institution, described Trump's move against the Fed as a, quote, Okay, now remember, the market runs on emotions.
As the independence of the Fed is threatened, the emotions will say that inflation is going to go up. This will be amplified by the fact that Trump wants lower interest rates. That's the whole reason this is happening. So he gets control of the Fed, orders interest rates cut. Investors are already expecting inflation. Then money gets easier to borrow, at least temporarily.
People will expect even more inflation. Then Trump finds out how things actually work. Trump wants cheap loans, lowers interest rates.
People expect inflation. Bond investors will want higher yields to cover that inflation, which drives interest rates up on long-term loans. The ultimate poetic justice is that Trump's desire to get rid of what he perceives as high interest rates may very well lead to higher interest rates and higher inflation. So, what's our check against this?
A Supreme Court that has shown itself to be very favorable to Trump's whims.
If they stick to their warning and preserve the Fed's independence, this is a chain of events we don't have to experience. And it'll be just a thought. Y'all have a good day.
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