The Federal Reserve under Janet Yellen yesterday announced another Fed Fund rate increase of 0.25%. This is the fourth such increase since Donald Trump was elected President.
Right after Barack Obama was elected President, on December 16, 2008, the Federal Reserve (The Fed) lowered the Fed Funds rate by an entire percent, from 1% down to 0% . The Fed had not lowered the Fed Funds rate by such a large amount (1% ) since at least before 1990, if ever. The Fed kept this 0% rate for most of Obama’s eight years in office.
CNBC reported in December 2015 that President Obama oversaw “seven years of the most accommodative monetary policy in U.S. history” (from the Fed). The Fed Funds rate was at zero for most of Obama’s time in office. Finally, in December 2015 after the Fed announced its first increase in the Fed Funds rate during the Obama Presidency, it was reported that:
Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic conditions, the committee decided to raise the target range for the federal funds rate to ¼ to ½ percent,” the FOMC’s post-meeting statement said. “The stance of monetary policy remains accommodative after this increase, thereby supporting further improvements in labor Premarket conditions and a return to 2 percent inflation.”
The only Fed Funds Rate increases after 2015 were after President Trump was elected President. The Fed increased the Fed Funds Rate on December 14, 2016, on March 15th, 2017, on June 14, 2017 and again yesterday on December 13, 2017. Four times the Fed has increased rates on President Trump after doing so only once on President Obama.
The Fed Funds Rate greatly impacts the economy:
Lower interest rates usually spur the economy by making corporate and consumer borrowing easier. Higher interest rates are intended to slow down the economy by making borrowing harder.
If the Federal Reserve was political and wanted to prevent Republican Presidents from successful economic growth and debt decreases, then the Fed would increase the Fed Funds rates during Republican Presidents’ terms while decreasing the Fed Funds rates under Democratic Presidents’ terms.
Increases in the Fed Funds Rate increase the cost of borrowing and the largest borrower in the world is the US government. With $20 trillion in debt, a 1% increase in interest payments equals $200 billion in annual interest payment increases. The US Debt has increased year to date through December 7th by $594 billion since President Trump’s inauguration on January 20, 2017. On inauguration day the debt was at $19.9 trillion and on December 7th, 2017 the debt stood at $20.5 trillion.
President Obama during the same time period in his first term also increased the US Debt. However, where President Trump increased the Debt to date by 3% , Obama increased the debt by 13% or 10% more than Trump. President Obama inherited a US Debt amount of $10.6 trillion on his inauguration and increased it by nearly $1.5 trillion during his first eleven months in office.
Obama increased the US Debt amount by nearly $1 trillion more than President Trump in the first eleven months of his Presidency.
The Fed has increased interest rates by 1% since President Trump’s election win. With no rate increases in interest rates, President Trump would arguably have a balanced budget to date. (Although the short term implications may not dictate this, the long term implications are clear.)
President Obama on the other hand benefited from the lowest possible interest rates possible for most of his eight years and in spite of this, nearly doubled the US Debt from $10 trillion to nearly $20 trillion.
The only things stopping President Trump from balancing the US Budget are Obama’s debt and the same thing that gave Obama the most “accommodative monetary policy in U.S. history” – The Fed.