Tariffs and Monetary Policy: Moral Hazard and Rent Seeking
President Trump's threat to impose tariffs on Mexico over immigration has pushed Federal Reserve Chair Jay Powell to say that if the tariffs lead to economic growth slowing, the Fed will cut interest rates. While the bump may be about to end, this announcement was followed by a solid global surge of stock markets on June 4 followed by smaller increases the next day. This sets up a moral hazard situation for Trump where if he behaves irresponsibly on trade policy (with even GOP senators basically freaking out), the Fed might bail him out with interest rate cuts. How is rent seekin... more »
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