It’s fairly normal for the Vice President to be in the role of attack dog on those opposing the administration’s agenda, so it wasn’t surprising to see Mr. Vance’s criticism of the Fed’s current policy position. Mr. Trump has been pushing for easier interest rates in both of his terms in office, and it is appropriate for the #2 to support his boss’s position. Here at BATG, we’ve repeatedly pointed out the political economy fact that politicians (with rare exceptions*) are always going to be in favor of lower rather than higher interest rates. But as Milton Friedman famously said, high interest rates are just the signal that prior rates were too low. Yet our current short term interest rates are actually not high by historical standards, nor are current mortgage rates that high (my first mortgage in the 1990s was 6.75% on a 15-year note). Previously the Secretary of the Treasury, Scott Bessent said the administration’s focus was on getting the 10-year rate down, not short term interest rates. I think that’s a better goal, and the way to do that is to end the $2T/year Biden deficits. Unfortunately I don’t see much commitment by the administration and the congress to do what needs to be done on the fiscal side, which would greatly alleviate the pressures on the monetary side. And that refusal is bi-partisan political malpractice.**

* Ronald Reagan quietly supported Paul Volcker’s crushing of inflation with 21% interest rates, reportedly telling him that he should do what needs to be done. That would cost the Republicans the Senate in 1982, but began the path to the so-called great moderation from 1982-2007. Yes, Reagan was a rare politician.

** The administration will properly say that a reconciliation bill is not a pathway for the long-term deficit reduction and that will come next in the appropriations process. However the Republicans don’t have the #s for real reduction there, and it will take significant presidential leadership to attack the real root problem–growth of entitlements. Mr. Trump has steadfastly said he will not touch Medicare or Social Security, so I’m not hopeful.