Do those who slam more rate cuts here want the president to lose next year? Or are they suddenly becoming stewards of Fed discipline and don't want negative rates because they mean that there's no hope for economic activity?
I think they do.
Look, hate Trump or like Trump, the economy does respond to a lower Fed funds rate. It is pretty axiomatic. Consider that we presume when rates go higher there's a slowdown in activity. Who the heck thinks it is asymmetrical? To me, the answer is only, in most cases, those who want Trump to lose. Or because they are ignorant about the way rates work.
It is true that most of the big things in economic life are driven by long rates. But there's more to activity than its linkage to long rates. Home equity loans are often priced off the long rates in some form or another. More important, auto loans are controlled by short rates -- and the auto execs would tell you that a cut in the Fed funds rate could be the most important spur to admittedly flagging sales. It's a canard to pretend they mean nothing.
Now the anti-rate-cut people often switch into high gear when you hit them with facts. In my case, I am someone who favors higher stock prices, so therefore I must be both a charlatan and a cheerleader who says the stock market demands lower rates.
Actually, it's the much-larger bond market that demands lower rates. Judging by the pricing, it would seem that the long rates are crying out for the short rates to come down. An inverted yield curve implies a slowdown or a recession. You take away an inverted yield curve, you take away a prop -- psychological or otherwise -- to a recession.
But the most important thing lower rates will do going into earnings season is give hope that next year at this time we will not have to hear about how we have lost business to our overseas trading competitors. Unless you are on conference calls, you do not understand how much money our companies are leaving on the table to be competing with foreign companies both in their domestic markets and overseas. Plus, the Chinese have been trying to make it so the tariffs fail by lowering the yuan.
The purists, including some Trump supporters, believe that it isn't right that we use the dollar as a way to make economic policy. These people are simply uninformed. Those of us who want a rate cut want it in part because we are sick and tired of our companies losing, not because we want debasement for debasement's sake.
Finally, there is the negative interest rate theory -- that if the Fed cuts too far, we will have negative interest rates. Do these people think that we had negative interest rates before the Fed raised nine times? Do these people understand it is about growth? The countries with negative rates tend not to have any.
We have plenty.
We will not, however, have plenty if we continue to prosecute the trade war and continue to see slowing in key commodities as well as enterprise tech spending the likes of which we heard Goldman Sachs (GS) say are going to hurt companies like Cisco (CSCO) and Hewlett Packard (HPE) , companies that would otherwise be hiring if things were stronger.
So go ahead. Militate against a rate cut. But understand that you are militating against the fight to keep this country from a recession right around election time. Is that fair? Yes, I guess, if you are a Democrat. No, of course, if you are a Republican, and, most of all, wrong, if you want more economic growth this time next year.