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Economists at the Federal Reserve Board and elsewhere can’t explain why the otherwise booming U.S. economy has little-to-no inflation, something Chairman Jerome Powell said heated up in 2018, prompting four straight 0.25% rate hikes. President Donald Trump slammed Powell for throwing a monkey wrench into the U.S. economy with what he saw as unnecessary rate hikes, slowing U.S. Gross Domestic Product [GDP]. After signing his whopping personal and corporate tax cuts into law Dec. 22, 2017, Trump promised GDP growth averaging about 4%. Powell miscalculated the inflation rate, raising the federal funds rate four times in 2018, putting a damper on U.S. GDP growth. Now Powell looks poised to start cutting rates with second quarter GDP running about 1.3%. June’s jobs report showed non-farm payrolls adding 240,000, far more than the 75,000 in May.

Chief Economist for Allianz SE 60-year-old Mohamed El-Erian thinks markets have gotten undersold due to expectations about future Fed rate cuts. “We as the market base have gotten carried away—carried away thinking it will be 50 basis point in July, think we’re going to get three cuts by the end of the year,” El-Erian said, not seeing the cuts as entirely necessary. If the Powell starts slashing rates, it will signal to markets that the economy has begun to sputter. No Fed Chairman slashes rates when he sees strong growth in the economic metrics. Powell commented about the U.S.-China trade war putting a damper on the economy, requiring the Fed to add stimulus. Expecting to meet July 30,31, the Fed, as El-Erian says, is more likely to cut only 25-basis points, the 50-basis points expected by Wall Street. El-Erian doesn’t see the U.S. economy in trouble, demanding steeper rate cuts.

No economist has stepped forward to explain why inflation looks so tame when the unemployment rate hit a 30-year low of 3.7%, typically signaling strong consumer spending. Whether admitted to or not by Powell, the Fed’s unemployment rates include part-time employment, typically without any benefits including heath care and retirement. If you listen to the White House, there’s a big disconnect between the booming stock market at record highs and ordinary workers. Ordinary worker are often working more than one part-time job, receiving no heath care or retirement benefits. When you add to that soaring monthly rent expenses, especially in big cities, there’s little left at the end of the month for consumer spending. Since consumer spends accounts for about two-thirds of GDP, it’s no wonder GDP has stalled. Cutting the federal funds rate lowers the prime and credit card rates.

According to the International Monetary Fund [IMF], Trump’s trade war with China amounts to 0.5% loss to U.S. GDP, not enough to have a significant impact on the economy. While Trump’s June 29 meeting at the G20 in Osaka with Chinese President Xi Jinping proved helpful, it did not resolve the current trade war. Trump said he’s in “no hurry” to resolve the dispute, noting that China has more to lose than the U.S. All the Fed’s metrics, including job growth, manufacturing payrolls, labor participation rate, wage growth, all showed modest gains, not explaining why the Fed looks poised at its next Open Market Committee meeting to slash rates. With the number of part-time employment rising by 7.2%, it looks like the current unemployment number is skewed by a dwindling labor force, workers no longer looking for full-time employment, settling for part-time jobs.

When the Great Recession hit in 2008, former Fed Chairman Alan Greenspan likened it to one of the nation’s great economic shocks, similar to the one in 1913 that prompted creating of the Federal Reserve Board. When Ben S. Bernake took over from Greenspan Feb. 1, 2006, he used every tool at the Fed’s disposal to keep the economy from lapsing into another Great Depression. Bernake slashed the federal funds rate to zero Dec. 16, 2008 to provide maximum stimulus to the economy. When that didn’t turn things around, Beranke started quantitative easing [QE], where the Fed buys $700 billion worth of U.S. treasuries, adding eventually trillions to the Fed’s balance sheet. While it’s unlikely Powell will return to quantitative easing, he could start slashing the federal funds rate. El-Erian thinks Wall Street expects Powell to follow the same easy money policy as Bernanke in 2008.

Showing negative and slow GDP growth since 2008, Powell has only recently figured out that the U.S. economy is still stuck in the doldrums. While there’s been some progress, including Wall Street’s resiliency, the lack of GDP growth relates directly to a part-time employment economy, not offering enough benefits of offset the high costs of health care and rent for ordinary Americans. ”They cannot afford another miscommunication,” El-Erian said, regarding the Fed’s next rate hike. El-Erian would like the Fed to cut 25-basis points to prevent overkill going into the next quarter. Wall Street can only inflate so far before it sells off, creating its own problems for the U.S. economy. If the Fed were to exclude part-time jobs, the unemployment rate would soar, not remain stuck at 3.7%, something not reflecting the struggle of ordinary citizens to make ends meet.