(Kitco News) - President-elect Donald Trump's economic agenda, including potential tax cuts and deregulation, will likely overshadow the Federal Reserve's influence in the coming years, according to Peter St Onge, an economist at the Heritage Foundation.
In an interview with Kitco News, St Onge argued that Trump's policies aimed at boosting economic growth, such as tax cuts and deregulation, could counteract the Fed's efforts to control inflation. He suggested that these policies could lead to increased spending by families and businesses, effectively crowding out the Fed's attempts to slow down the economy.
"What he's [Powell] concerned about at this point is that Trump wants to reverse that," St Onge said. "So Trump wants to cut taxes. He wants to… give money back to people. He wants families to be spending again. He wants companies to be spending. He wants banks to be lending."
St Onge believes that the Fed's recent interest rate cuts, totaling a full percentage point since September, are an acknowledgment of its past mistakes in handling inflation. He pointed to Fed Chair Jerome Powell's own statements as evidence of the central bank's uncertainty.
"So this guy is signaling to the world that he has no idea what he's doing, which is refreshing because the Fed never knows what it's doing," St Onge stated. He added that the Fed's current projections of 1.8% growth over the next three to four years are "pathetic in historical terms."
St Onge also raised concerns about the accuracy of government economic data, suggesting potential revisions could emerge following Trump's inauguration. He noted a disconnect between official statistics and public sentiment, with many Americans believing the country is already in a recession.
St Onge advocates for ending the Federal Reserve, arguing that it is the primary cause of inflation and boom-bust cycles. He proposed reinstating a gold standard by allowing the Treasury to sell gold at a fixed price and requiring it to replenish its reserves on the open market.
"The Fed is the only cause of inflation because it prints money," St Onge stated.
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St Onge believes that a gold standard would limit the Fed's ability to manipulate interest rates and create economic instability. However, such a move would face resistance from those who benefit from the current system, including large banks and pension funds.
He also discussed the potential impact of Trump's economic policies on the U.S. dollar. While Trump has expressed a desire for a weaker dollar to boost exports, he has also threatened tariffs on countries joining the BRICS currency bloc, indicating a more complex stance on the issue.
St Onge believes that the long-term outlook for paper currencies is bleak, potentially leading to a flight to the U.S. dollar in the short term.
He prefers keeping U.S. gold reserves as a "backup" in case of economic turmoil.
There is potential for resurgence of economic growth under Trump's policies, St Onge added, expressing his own investment strategy as being "positioned for a boom." He acknowledged the possibility of a market crash but maintained that the odds favor economic expansion.
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