The business editor of the Daily Telegraph, put down a strong prediction in his column on AI and the Trump economy this week. Ambrose Evans-Pritchard doesn’t believe that the current AI boom looks very much like the dot-com bubble of 2000. The companies involved in AI are real, have considerable revenues, and can take some hits. Plus their prices aren’t as out of line as anything from the Pets.com era.
But AEP points to another factor that would work against imminent recession: Fed policy as run by a Trumpified central bank. AEP writes,
I strongly doubt that the Fed will let this metastasise into a self-feeding recessionary process or that it can even operate any longer as a scientific central bank. Trump is taking over the Fed Board and will progressively compel it to suppress rates far enough to drive a hot economy until the midterm elections next year.
He has appointed his guru Stephen Miran to the Fed with an easy money voodoo agenda – technically, Miran claims that the “neutral” rate of interest is two percentage points lower than Fed experts think. Trump is waging a war of harassment against legacy appointees, either to drive them out or to intimidate them into towing the line on premature rate cuts.
Trump will own as much of the Fed as he needs by mid-2026. I struggle to see how there can be a lasting stock market crash over the next year in this debauched politico-monetary setting.
In the end, re-accelerating inflation could – and will again – push up Treasury yields and short-circuit the asset boom. Should that happen, I have no doubt that the Trump treasury would strong-arm the Fed into capping yields by means of financial repression – as happened in the late 1940s.
This is a wild prediction, but not a baseless one. Trump wanted to run the economy hot in his first term. He wanted to send things frothing in election year 2020 by calling an end to the trade war with China.