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Trump vs the Fed: Who's really driving the American economy?


Trump vs the Fed: Who's really driving the American economy?

WATCH  |  What happens when the two people that can help propel America's economy forward aren't on the same page.

President Trump campaigned on the promise of getting Americans back to work. And most people agree he is indeed to see the U.S. economy really flourish.

But the two people who can push the economy forward don't exactly see eye to eye. Between Trump and Federal Reserve Chairwoman Janet Yellen, who is really driving the economy?

As the central bank chief prepares to appear before Congress, what people want to know is whether their two means to economic prosperity can be reconciled. 

Two issues certain to come up are financial reform and interest rates.

For the Fed, which controls our money supply and sets economic policy, steady growth is a good sign. The central bank has two main twin mandates it oversees:

  1. Keep employment stable
  2. Keep inflation at bay

Trump's approach, via tax reform and spending cuts, doesn't necessarily lead to low-interest rates or low inflation, the New York Times notes. In theory, when inflation is low, the economy performs better. Historically, this has been the case when interest rates are also low as it pushes businesses to spend on things like hiring.

The way at least one economist sees it, it's not about who's navigating, but whether they recognize when it's time to pass the baton. 

"Even prior to Janet Yellen going back to Ben Bernanke had been saying that their tool, their monetary policy could only do so much," Greg McBride, chief financial analyst at Bankrate.com, told Circa. "And that at some point, fiscal policy, the government would have to pick up the ball and run with it in terms of boosting the economy to that next level."

Federal Reserve.jpg
The Federal Reserve in Washington. (Circa)

The problem is Yellen and the Fed believe -- that with slow and steady growth -- the economy is pretty much back on track. Meanwhile, Trump and company want more robust growth at a faster clip.

We're looking at the same coin, but we see two different things.
Greg McBride, Bankrate.com

"It's much like holding up a quarter, you know you see heads, I see tails. We're looking at the same coin, but we see two different things," McBride explains. Think of the quarter as a path to job creation and income growth.

Those things can happen, but the method is a point of possible contention. How can they work toward the same goal without losing momentum?

Well, Trump could fill the vacant seats on the Fed's Board of Governors with like-minded leaders. He could also replace the dovish central bank chair when her term is up like he said he might do during the campaign.

(For her part, Yellen says she isn't stepping down anytime soon.)

You do need a steady hand at the Federal Reserve.
Greg McBride, Bankrate.com

Or, as McBride advises, they can work together.

"Once you're president you do kind of need a steady hand at the Federal Reserve. And so changing jockeys in the middle of a horse race may not be as desirable as president," he said.

Time will tell.

Trump vs the Fed: Who's really driving the American economy?

WATCH  |  For Fed watchers, who take their cues on how the economy is really doing from the central bank, any slight moves are super intriguing.

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