The Fed should have an emergency meeting and reduce the interest rate by 50 basis points
Stephen Moore, former economic adviser to President Donald Trump and almost-board member, says that's not soon enough.
<p class = "canvas atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "“ The Fed should have an emergency meeting next week, don't wait until September and lower interest rates by 50 basis points, "he told Yahoo Finance & # 39; s & nbsp; On the Move . "Data-reactid =" 18 ">" The Fed should have an emergency meeting next week, do not wait until September and cut interest rates by 50 basis points, "he told Yahoo Finance & # 39; s On
Commodity prices have fallen over the past year, as Moore sees as a signal of deflation, saying that commodities provide a more accurate inflation picture than the Fed's preferred model, which measures personal consumption expenditure (PCE).
<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8 em) – sm" type = "text" content = "WTI raw ( CL = F ), for example, has fallen about 18% over the last 12 months, with wheat and coffee showing similar declines. Copper (HG = F) often seen as a global economic indicator, is almost 7% down and soybeans are about 2.5%. "data-reactid =" 20 "> WTI crude (CL = F), for example, has fallen about 18% over the last 12 months, with wheat and coffee showing similar declines. Copper (HG = F), often seen as a global economic indicator, is down nearly 7% and soybeans are about 2.5%.
<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) –sm Mt (0 , 8 em) – sm "type =" text "content =" "That's a pretty good indication that we don't have rising prices in this country, that we have a threat of falling prices. Can be just as bad for the economy – if not worse than – inflation, "said Moore, an economist for The Heritage Foundation. Meanwhile, gold prices ( GC = F ) have risen 24% and the US dollar index ( DX-Y ) has risen about 2% over the past year. "data-reactid =" 21 ">" It is a pretty good indication that we do not have rising prices in this country, that we have a threat of falling prices. Deflation can be just as bad for the economy – if not worse – inflation, says Moore, an economist for The Heritage Foundation. Meanwhile, gold prices (GC = F) have risen 24% and the US dollar index (DX-Y) has risen about 2% over the past year.
"The demand for dollars is not being met by the Fed, so I'm very worried about a deflationary spiral right now," Moore said.
Will deflation really come?
In March, Trump announced his intention to nominate Moore to be governor of the Federal Reserve. Less than two months later, Moore withdrew his name from consideration.
<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Moore has been a long-time critic of Fed. In the middle of and after the financial crisis, he warned that interest rate cuts would halt inflation, and he told to & nbsp; the Washington Post in August last year, "& # 39; I must admit: I was wrong with inflation in 2009 and 2010. I thought there would be a lot of inflation with the Fed lowering rates to practically zero, and that was wrong. & # 39; "" Data-reactid = "25"> Moore has been a longtime critic of the Fed. In the midst of and after the financial crisis, he warned that interest rate cuts would prevent inflation. He then told the Washington Post in August last year, & # 39; & # 39; I have to admit: I was wrong with inflation in 2009 and 2010. I thought there would be a lot of inflation with the Fed lowering interest rates to practically zero, and that was wrong. & # 39; ”
Peter Borish, chief strategist at Quad Group, has long warned that falling commodity prices were a sign of future deflation. But he disagrees with Moore about the prescription. "Cutting for cutting is a mistake in my opinion and will send a super negative message to the market."
<p class = "canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm "type =" text "content =" The view that deflation is coming is by no means a consensus, although inflation has slowed. US Department of Labor & nbsp; sa & nbsp; On Friday, wholesale prices rose only 0.2% in July, following a 0.1% increase in June. "data-reactid =" 27 "> The view that deflation is coming is by no means unanimous, although inflation has slowed. The US Department of Labor said Friday that wholesale prices rose only 0.2% in July, following a rise of 0 , 1% in June.
The impact of tariffs
Goldman Sachs chief economist Jan Hatzius predicted on Friday that tariffs on Chinese goods have plunged and will continue to stimulate inflation.
"Our analysis of consumer prices, imports and Customs tariffs in tariff-framed commodity categories indicate that most customs costs were passed on to consumers, and that there were also significant price reductions, "he wrote in a note to clients.
He said that tariff rates have strengthened core PCE year-round by 0, 10% -0.15%, and the next Customs Round, which will come into force on September 1, will add another 0.2%.
Moore acknowledges that there have been costs to the trade war even as he whips up his deflation argument.
"Support Am I doing Donald Trump in China? Yes. Does this cost Americans an expense? Yes it is. But the question is, when should we stand up to them? Should we stand up to them now or in two or three or five years from now when they are stronger? I see this as short-term pain for long-term gain. "
<p class =" canvas-atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm "type =" text "content =" He also said that & nbsp; stock markets have overreacted & nbsp; to the raging of the trade war over the past week. " data-reactid = "34"> He also said stock markets have overreacted to the raging of the trade war over the past week.
<p class = "canvas atom canvas text Mb (1.0em) Mb (0) – sm Mt (0.8 em) – sm" type = "text" content = " Julie Hyman is anchored to On the Move about Yahoo Finance. "data-reactid =" 35 "> Julie Hyman is the co-anchor of [19659014] On the Move on Yahoo Finance.
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