From AP:
…on Thursday during the World Economic Forum’s annual event in Davos, Switzerland, Trump said he would reduce oil prices, and then “I’ll demand that interest rates drop immediately, and likewise, they should be dropping all over the world.”
From Carola Binder (JMCB, 2021), “Political Pressures on Central Banks”:
I construct a quarterly data set on political pressure faced by 118 central banks from 2010 to 2018 using country-level reports. I code whether each central bank is reportedly succumbing to pressure or resisting pressure. About I 0% of central banks reportedly face political pressure in an average year. Even central banks with high legal independence frequently face pressure-nearly always for looser monetary policy. Pressure on the central bank is associated with higher inflation and inflation persistence. Pressure is more likely to come from governments with left-wing or nationalist executives, few checks and balances, or weak electoral competition.
Ungated prepublication version here.
And just in case you forgot what the Barro-Gordon results were, from the abstract to “A Positive Theory of Monetary Policy in a Natural Rate Model”:
A discretionary policymaker can create surprise inflation, which may reduce employment and raise government revenue. But when people understand the policymaker’s objectives, these surprises cannot occur systematically. In equilibrium people form expectations rationally and the policymaker optimizes in each period, subject to the way that people form expectations. Then, we find that (1) the rates of monetary growth and inflation are excessive; (2) these rates depend on the slope of Phillips curve, the natural unemployment rate, and other variables that affect the benefits and costs from inflation; (3) the monetary authority behaves countercyclically; and (4) unemployment is independent of money policy. Outcomes improve if rules commit future policy choices in the appropriate manner. The value of these commitments–which amount to long-term contracts between the government and the private sector–underlies the argument for rules over discretion.
Off topic but related – Big doings in Chinese financial markets this week.
Another market intervention, this time in equities:
https://apnews.com/article/china-markets-economy-stocks-pensions-90e82a9beb04ac136303b3b577f378d7
Pension and mutual funds have been ordered to increase their share holdings by 10% per year for the next three years, and insurance firms have been ordered to invest 30% of new premia in equities. Seems to be working:
https://tradingeconomics.com/hong-kong/stock-market
This follows a similar, opposite command regarding fixed income; earlier this month, China’s government warned mutual funds against purchasing bonds:
https://www.reuters.com/markets/rates-bonds/china-cbank-calls-mutual-funds-flag-bond-investment-risks-sources-say-2025-01-03/
Here’s the result of that order:
https://tradingeconomics.com/china/government-bond-yield
Among other things, the government is engineering a distortion of market signals – bond yields and share prices will be artificially high, giving a misleading impression of economic health. Of course, a bond bubble creates risks of its own, so putting lipstick on China’s economic performance is not the only reason for manipulating asset prices.
The other big event is less overtly distortionate – a big liquidity injection:
https://finance.yahoo.com/news/pboc-dials-short-term-liquidity-014513467.html
The accompanying explanation makes this out to be quotidian liquidity management – a combination of factors either draining cash or requiring cash needs an offsetting injection of cash to avoid an unwanted tightening in monetary conditions. This kind of thing is often accompanied by price wobbles which have little meaning beyond the short term.
Off topic – Trump wants a nukes deal with Iran?:
http://www.timesofisrael.com/trump-said-set-to-tap-mideast-envoy-steve-witkoff-as-iran-point-man/amp/
Trump blew up Obama’s deal with Iran, but then Trump blew up anything that Obama had done – other than Obamacare – pretty much out of spite. Now, after years of Iran getting ready to arm itself with nukes and stirring up trouble in the Middle East, Trump thinks a nukes deal is a good idea? Maybe he thinks showing Iran that we can’t be trusted is a clever approach to negotiation.
With Isreal rampaging in Gaza, Lebanon, Syria and the West Bank, Trump is talking about resurrecting an Iran nukes deal that Isreal hates. This is a head-scratcher.
Musk promised that his Department of Government Efficiency would cut $1 trillion from the deficit. Instead, today he announced he is going to settle for pennies — literally!
Eliminating the minting of pennies will trim about $180 million from the budget. So this genius is already 0.02% of his way to his goal. The rest should be easy.
The question seems to be, according to Jaimie Galbraith, whether it will make any difference at all if Trump pressures the Fed to lower interest rates:
“ The difficulty facing the Federal Reserve now is neither Congress nor mandate, but the evanescence of the theoretical constructs on which the macroeconomic role of the central bank was founded. Neo-Keynesianism and monetarism died long ago. Inflation targeting, forward guidance, and expectations management had no effect on price increases in 2021-2022. Most surprisingly to the economists, Jerome Powell’s interest rate hikes, launched in March 2022, had no perceptible effect on growth or employment, hence no plausible role in bringing the inflation rate down. Monetary policy has become an empty set of rituals. When interest rates rise, the press reflexively reports that inflation is being fought; when they fall, the Fed is supporting growth and the labor market. But the gears are disconnected from the engine; the supposed causes no longer bear on the supposed effects.” https://www.ineteconomics.org/perspectives/blog/the-origins-of-the-modern-era-of-the-federal-reserve
Galbraith may be overstating case, but he certainly has a point.
Other rules versus discretion: https://www.nbcnews.com/politics/politics-news/biden-sign-order-aiming-half-new-vehicles-be-electric-2030-n1275995
Trump’s “demand” for worldwide reductions in interest rates and Biden’s “goal” of 50% EVs by 2030 don’t carry the weight of law, but they both carried the weight of the POTUS and have the consequences of “rules” versus “discretion”. Sales of EVs and level of interest rates should be the results, not the drivers, of other economic factors such as demand or supply.
I think you’ve confused the distinction between rules-based decisions and discretionary decisions with something else. That’s really not the distinction in operation in Biden’s order.
And by the way, who are you to dictate that EV sakes should be determined only by market factors? We regulate sales of explosives, pharmaceuticals, alcohol, furnaces, paint, gun, tobacco, chemicals, food…the list goes on.
Why, pray tell should we exempt the mix of vehicles from regulation? What’s the logic here? None? Because some guy says so? OK, then.