How Trump Survives

NBC News and the Wall Street Journal polled his job approval. There was no appreciable change.

.. Why? The most important reason has to be the remarkable state of the American economy. On Election Day 2016, the Dow Jones Industrial Average closed at 18,332.43. On August 29, it closed at 26,124.57. That is an increase of some 40 percent. Other indices show similar gains. Growth in GDP went from 1.5 percent in 2016 to 2.3 percent in 2017 and, helped by the excellent 4.2 percent number in the second quarter, is forecast for around 3 percent in 2018.

.. The fact that presidents are not responsible for the economy does not stop the public from assigning them blame or credit. And Trump deserves some credit. His pro-business attitude stirs the bulls’ animal spirits. His deregulatory and tax policies contribute to growth. Trump understands that he is riding the bull — and that his following will be strong for the duration of the journey.

.. The economic boom is crucial in understanding why Trump enjoys the 88 percent approval among Republicans that keeps him politically viable.
.. Trump continues to goad, highlight, and benefit from an antagonistic news media. The overwhelmingly negative coverage of Trump paradoxically works to his advantage by driving his supporters to rally to his side. When the press gets a story wrong, Trump is vindicated. His voters have less reason to trust the elite media institutions they see as allied against them in a struggle over American identity.
.. Media obsession with Trump and scandal helps the president in other ways. For one, the scandals are confusing and increasingly self-referential. Only political professionals and junkies can keep track of them. The headlines run together. The talking heads are background noise to men and women outside the bubble.
.. The media fixation hands Trump the initiative. Because so much of the news is based on his Twitter feed, he can create storylines — and spark confusion and outrage — with the push of a button. This ability lets him shift attention from current controversies by creating fresh ones. The ongoing hysteria lessens the cost to Trump of each bad story. It also allows him to portray media institutions and figures as insiders contemptuous of Trump voters and eager to overturn the result of a presidential election.

Democrats — and most Republicans for that matter — have yet to grasp the ideas of political economy that Trump intuits: government that privileges American citizens through

  • tight labor markets,
  • border security,
  • trade reciprocity, and
  • entitlements.

.. Nor do Democrats understand that American populism is not simply economic. It is cultural. It has long been associated with traditional values and practices, an unreconstructed patriotism, and support for law and order. No matter how well Democratic proposals might test, the party will not succeed at the national level unless it addresses and mollifies the social concerns of the white working class. Pelosi, Schumer, and Sanders have not tried.

Fed’s New Chief Will Confront an Old Problem: An Incipient Asset Bubble

With stock and property prices once again setting records, Jerome Powell may face some agonizing trade-offs

What if low inflation calls for low interest rates but those low interest rates make an eventual, destructive asset bust more likely? Should he lean against an incipient bubble by raising rates faster now, or plan to mop up the mess if assets collapse later?

.. no divine coincidence dictates that the ​same interest rate will achieve both 2% inflation and a stable financial system.

.. Before the global financial crisis, they concluded no: pre-emptively pricking bubbles seemed much riskier than letting them burst of their own accord. They are less dogmatic now.

.. In a 2015 speech, he said: “Tighter monetary policy might eventually be necessary” if dangerous risk-taking reappeared. A year ago, he went further: “The current extended period of very low nominal rates calls for a high degree of vigilance.”
The case for vigilance has only grown since.

The Fed Isn’t the Tax Cut’s Enemy

Officials are open to the possibility that the tax cut will raise the economy’s potential growth rate, although it isn’t their base case

conventional wisdom is that this is the wrong time for Republicans to cut taxes by $1.4 trillion over the next decade. The fiscal stimulus will overheat the economy and force the Federal Reserve to slow it down by raising interest rates more aggressively.

inflation is still too low, and that completely changes the equation: It suggests overheating is to be welcomed, not resisted.

officials are open to the possibility that the tax cut will raise the economy’s potential growth rate, which means faster growth wouldn’t necessarily lead to more inflation.

.. Ms. Yellen and her likely successor, Fed governor Jerome Powell, aren’t yet the party poopers many supply-side tax cut advocates feared.

.. [Larry Kudlow: ] The real test, he said, is how the Fed reacts if growth tops 3%

.. By 2020 Fed officials expect their benchmark federal-funds rate to reach 3.1%, which would be above the 2.8% they expect to prevail in a fully-employed economy growing normally

.. Ms. Yellen made it clear she didn’t agree with Mr. Trump and Treasury Secretary Steven Mnuchin that the tax cut would pay for itself, and warned it may be “taking what is already a significant [debt] problem and making it worse.”

Mnuchin Gets His Man

Steven Mnuchin. The Treasury Secretary lobbied hard for Mr. Powell on grounds that he was more open to Administration influence than the other leading candidates. This may be unfair to Mr. Powell, but it does raise questions about Mr. Powell’s independence and capacity for the job.

 .. He has few enemies, but he has left barely a policy footprint. His speeches are notable for endorsing whatever official Fed policy was at the time. He’s never dissented at the Open Market Committee (FOMC), which can be seen as loyalty to the chairman or a lack of personal conviction. This is especially notable in a period when other governors and regional bank presidents opine on everything.
.. This suggests that Mr. Powell’s views reflect those of the monetary status quo under current Chair Janet Yellen, and perhaps this is what Messrs. Mnuchin and Trump want. But in that case Mr. Trump should have continued with Ms. Yellen, who at least has been in charge. Mr. Powell will have to establish his authority with the other FOMC Members and the Fed staff, which is dominated by economists with a monetary policy model that requires a firm hand to supersede.

One certainty is that the next four years will be more volatile, especially if growth accelerates, interest rates rise and as the Fed shrinks its balance sheet. Mr. Powell has some experience in domestic financial markets but not in international currency and emerging markets. The combination of Mr. Powell at the Fed and Mr. Mnuchin at Treasury isn’t exactly the financial equivalent of SEAL Team 6.