The Lesson of Trump vs. Powell

Their dispute is a reminder that monetary policy can’t make up for economic policy errors like tariffs

WSJ editorial. Excerpts:

"The problem for Mr. Trump is that Mr. Powell spoke the truth. Tariffs are a tax, which means higher prices for tariffed goods. Mr. Trump has imposed a minimum tariff on the world of 10%, which is roughly four times the previous average U.S. tariff rate of 2.4%."

"there’s also mounting evidence that household and business uncertainty is mounting, which will weigh on the private investment Mr. Trump needs to spur growth. Consumer spending could ebb as falling stock prices cause the “wealth effect” underpinning consumer confidence to go into reverse. Many economists think a recession is on the horizon." 

"the Fed hasn’t reached its target inflation rate of 2%, so Mr. Powell is right to be wary of trying to offset the impact of tariffs by easing money too much or too soon."

"That was the mistake the Fed made in the 1970s after Richard Nixon suspended dollar convertibility to gold and blew up the Bretton Woods monetary system."

"If the President wants faster growth and less market turmoil, he can help by ending his tariff campaign. Then get Congress to move on a tax- and spending-cut bill, and press ahead with deregulation."