[Correspondent's Column] The Aftershocks of 'Election-Driven Prescriptions' Shaking the U.S. Economy

In early January this year, I traveled to Philadelphia in the United States. Every year at the start of the new year, American economists gather in one place to fiercely debate the latest research findings and policy challenges. For three days, a packed schedule of lectures and discussions unfolded without a break.
One of the highlights of this year's event was a session titled "The Future of the Federal Reserve System (Fed)." World-renowned scholars took part, along with former Fed chairs and regional Fed presidents. Interest was especially high because U.S. President Donald John Trump had spent the past year repeatedly calling on the Federal Reserve (the Fed) to cut interest rates.
"Fiscal dominance." That was the theme raised by former Fed Chair and former U.S. Department of the Treasury (Treasury Department) Secretary Janet Yellen. She warned of the dangerous situation in which monetary policy is mobilized to contain America's massive fiscal deficit and debt. As of January this year, U.S. national debt had surpassed 38.5 trillion dollars (about 55,717 trillion won). Annual interest payments alone amount to 1 trillion dollars (about 1,473.6 trillion won). Considering that the Republic of Korea's government budget for this year is 728 trillion won, one can grasp the scale.
This is also why the argument that benchmark rates must be cut to reduce debt-servicing costs, even slightly, has been gaining traction. Fiscal policy is effectively putting pressure on monetary policy. Yet there is a reason fiscal and monetary policy have traditionally been kept separate. If interest rates are artificially lowered to shrink the fiscal deficit, inflation can flare up again, and the side effects ultimately spill over into people's daily lives.
Those concerns are now becoming reality. Pressure to cut rates has escalated beyond a "war of words" into an unprecedented legal battle involving "criminal investigations" and "threats of lawsuits." The Trump administration is using the issue of renovation and repair costs for the Fed's building as leverage, deploying the Department of Justice to pressure Fed Chair Jerome Hayden Powell. Powell has refused to yield, opting instead to confront the situation head-on and defend the Fed's independence. Central bank governors from major economies, former Fed chairs, and market experts have all spoken with one voice in condemning attempts to undermine that independence.
The proposal to cap credit card interest rates at a maximum of 10% is another scene in which politics overwhelms economic logic. President Trump has suggested that, on a trial basis for one year, the current average credit card rate of 20–30% be capped at 10%. Banks such as JPMorgan Chase are pushing back, arguing that "it could actually harm consumers and the economy by reducing the supply of credit." Critics also warn that low-income borrowers could be pushed into even higher-interest loan products.
The political pressure on the Fed to cut rates and the push to impose a ceiling on credit card interest share a common thread: both are attempts by politics to dominate the economy. This is happening in a year when the United States will hold midterm elections in November. All 435 seats in the United States House of Representatives and 35 seats—about 30%—in the United States Senate will be contested. Some predict that if control of Congress shifts to the Democratic Party, President Trump could fall into an early lame-duck period. Trump has even publicly said that if he loses the House races, he could be impeached, revealing the depth of his sense of crisis.
The election will end in November, but the aftershocks in interest rates and credit, shaken by politics, will linger far longer. The moment the language of economics is replaced by the logic of politics, trust is the first thing to crumble. And once trust erodes, an economy built upon it begins to wobble as well.
Revisiting the remarks of scholars at the American Economic Association (AEA) meetings, what is needed now is "courage" from politicians. The path to resolving fiscal deficits inevitably leads to fiscal reform and higher taxes. David Romer, a professor at the University of California, Berkeley (UC Berkeley), remarked, "A politician who runs on a platform of fixing the fiscal deficit does not get elected." Sweet promises aimed at short-term gains and electoral victory can boomerang, sapping the economy's strength. Prescriptions tailored to win votes may taste sweet, but the bill is always paid out of ordinary people's living expenses.
In a democracy, elections are held again and again. Voters, too, must now coolly assess not who offers the sweetest pledges, but who will uphold the principles and responsibilities of sound economic policy.
pride@fnnews.com Reporter