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Image: © The White House via Flickr

Trump is “very unhappy” with America’s central bank.

The President of the US is annoyed that the central bank keeps raising interest rates, because he thinks they make the economy worse. 

What it means: Trump is having beef with the Fed (which is the nickname for the Federal Reserve, America’s central bank). Figuring out what’s going on here can be pretty confusing, because there’s a lot of jargony economics happening. But let’s try and break it down.

Most countries have their own special bank, called a central bank, whose job is to make sure the country’s finances stay stable and prices don’t move up or down too quickly. That’s pretty important! Think of the last thing you bought and imagine how you would feel if tomorrow it halved or doubled in price. We need to feel relatively confident on how much things cost so we can budget our money and figure out how much we need to earn to maintain a certain standard of living.

One of the big tools central banks have to keep prices stable-ish is interest rates. You’re probably familiar with what these are - it’s the extra money your bank gives you for stashing your savings in their account, or the extra money you pay them back when you take out a loan. (It’s always stated as a percentage). Central banks influence what everybody’s interest rates are by setting a 'base rate' which commercial banks use as a basis for setting their own.

When interest rates are high, people and businesses tend to save more money. When interest rates are low, we usually borrow and spend more money. When people and companies spend lots of money, the economy ‘grows’: the more things people want buy, the more businesses can open, the more companies spend money on things like employees and machines, the more jobs are created the more things they can create. But according to popular economic theory, if too much money is being spent (as opposed to being saved) then prices start rising (technical term: inflation) and the chance of big bad recession increases.

Trump, however, thinks that when it comes to the economy, bigger is better. He doesn’t agree with the Fed that growing it very quickly will send prices up or risk recessions - he thinks it’ll just make Americans richer and America Great Again. Lots of the stuff he’s done, like cutting taxes, is intended to get people spending more, so he sees the Fed as undermining his plans by raising interest rates.

Read our explainers on central banks, monetary policy and economic growth.

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Reader Comments

  • ClawV23

    So they’re more or less becoming homeless on purpose and taking advantage of people’s kindness? That’s very disappointing, I’ve always imagined myself walking on the path of the monk but my idea of a modern monk was to achieve a level of independence at which I can grow my own food on a piece of land I own, make my own hemp clothes and live in a small log cabin somewhere outside civilization instead of begging people for a bowl of food.