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Will The Fed Stomp On The Trump Economic Boom Right Before The Midterm Election?

In a speech on the U.S. economy, Federal Reserve, Richmond Fed President Thomas Barkin argued that the Fed's benchmark interest rate was below normal levels, a suggestion that Fed policy was still stimulating economic growth, which he said was solid.

"It is difficult to argue that lower than normal rates are appropriate when unemployment is low and inflation is effectively at the Fed’s target," Barkin said in Roanoke, Virginia according to reports by our friends at Wall StreetNewsMax.

The U.S. central bank kept interest rates unchanged last week, but NewsMax says its statement pointed to strength in the economy and bolstered expectations it would raise borrowing costs in September.

The Fed has been slowly raising interest rates since 2015. Barkin told reporters afterward that gradually raising rates was a "sensible" approach.

Barkin, who has a vote this year on monetary policy, said in his speech that the U.S. labor market appeared to be "very tight," although he noted wages were not rising very quickly for reasons still unclear. This could perhaps be due to slower growth in productivity at companies, NewsMax reported.

So, let us break Mr. Barkin’s remarks down for you.

In the simplest terms Barkin is predicting that the Fed will manage the growth of the economy on the backs of job-seekers, by raising the interest rate job-creators must pay to build the plants and buy the equipment and inventory necessary to create more jobs.

But is the hiring and employment environment so hot that an inflationary labor shortage is upon us?

Back in the Spring, our friends at Breitbart report that Treasury Secretary Steven Mnuchin did not see signs of a labor shortage. In an interview at the Milken Institute’s Global Conference in Los Angeles, Mnuchin brushed aside talk about a labor shortage from Fox Business Network’s Maria Bartiromo.

When Bartiromo pressed the issue, Mnuchin pushed back again.

Businesses hoping the administration will expand programs for foreign workers have been arguing that they cannot find enough workers. But as Minnesota Fed President Neel Kashkari has argued, there is no objective evidence of a labor shortage.

Bartiromo also asked Mnuchin about inflation and recent signs that wages were rising. “We want wages to go up. A little bit of inflation is a good thing. Too much isn’t a good thing but I see only a little bit,” Mnuchin said. Mnuchin added that he sees no signs of too much inflation in the future, reported Breitbart’s John Carney.

A year and a half into the Trump presidency the American economy has seen solid growth, more people in jobs, Wall Street has broken records on a regular basis and GDP growth has topped President Trump’s 4 percent goal.

However, in the alternative universe where Wall Street’s Masters of the Universe and the mandarins who control America’s Federal Reserve Bank live, good news for America’s middle-income families is apparently bad news.

Jed Graham of Investor’s Business Daily said a while back that “wage hikes from the likes of Walmart, Starbucks, and JPMorgan Chase announced in the wake of tax reform provide some reason to expect a pickup from the lackluster gains of recent years, IBD presented three reasons why the January pay raise reported by the Labor Department was less than meets the eye. Still, investors' reaction reflects Wall Street's nervousness about leaving behind a Goldilocks era of so-so economic growth and tepid inflation, accompanied by strong stock market gains.

In other words, low inflation, accompanied by slow economic growth, no wage gains and higher unemployment is the goal the policymakers are seeking to sustain “strong stock market gains.”

Barkin’s remarks would also seem to drop an onion in the punchbowl for Republicans planning to run their midterm campaigns on the strong economy.

An increase In the Fed interest rate could trigger a jump in unemployment and a drop in the stock market right before the election, quashing the efforts of the GOP to expand their majority in the Senate and hold or expand their majority in the House.

And, we would be remiss not to point out that for the entire time Obama was President the Fed kept interest rates at zero to subsidize his failed regulatory state economic policies.

President Trump campaigned on policies that would boost the economy to 4 percent – or greater – growth. Now, just when Trump’s policies have pushed GDP growth past 4 percent and America’s hard-pressed middle-income families are beginning to see the benefits of Trump’s policies, is not the time for the Fed to cool the economy.

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