Trump Bets His Reelection on the Fed and Fear of Immigrants

(Bloomberg Businessweek) -- As he looks ahead to his reelection campaign, President Trump isn't behaving anything like his predecessors did. (Shocker, I know.) Mindful that they'd soon face voters again, recent presidents spent their third year in office seeking to rack up legislative accomplishments. George W. Bush signed a major tax cut. Barack Obama tried, but failed, to pass a “grand bargain” to cut the deficit. 

Trump hasn't made even a pretense of pursuing legislation or tacking toward the political center. Over the last two weeks, he's signaled he'll instead pursue a different sort of reelection strategy that lets him act unilaterally, one built around the twin pillars of easy money and tough crackdowns on immigrants. 

For the last six months, Trump has bullied and criticized Federal Reserve chairman Jerome Powell for raising interest rates and lacking “a feel for the Market” (as Trump put it in a tweet). He considered firing him. And he's taken the further step of expressing his intention to nominate Stephen Moore and Herman Cain to the Fed's board, candidates sorely lacking in traditional qualifications whose chief positive attribute appears to be their fealty to Trump. 

It's no mystery why this path would appeal to Trump. The Fed sets the interest rates banks pay to borrow reserves, which in turn helps determine rates on everything from home mortgages to credit card spending. When rates are low, consumers borrow and spend; businesses hire. The Fed's signal earlier this year that it planned to pause rate hikes has driven stocks to near-record highs. Trump's allies are pushing for more. Moore and Larry Kudlow, Trump's top economic adviser, are both publicly lobbying for a half-point rate cut, knowing it would likely supercharge Trump's greatest electoral strength: 58 percent of voters in the new Georgetown Institute of Politics “Battleground Poll” say they approve of the job he's done on the economy.

Trump's ouster of Secretary Kirstjen Nielsen and other top officials at the Department of Homeland Security was the latest escalation of the president's desire to deliver on his promise to crack down on illegal immigration. Trump isn't going to get a border wall, can't shut off asylum claims, and would wreck his popularity on the economy if he shut down the U.S.-Mexico border for long. But he also can't retreat: the latest Economist/YouGov poll showed that 93 percent of Republicans said the issue is important to them—and it's important to even more (96 percent) of the people who voted for Trump in 2016 . 

Unwilling to bargain with Democrats to reform immigration law, and unable to secure changes by fiat, Trump is becoming increasingly agitated. CNN reports that he pressured Nielsen's replacement, Kevin McAleenan, to break the law by blocking asylum seekers from entering the country, promising McAleenan a pardon if he was sent to jail. (The House Democrats are investigating.) Even after the White House denied it, Trump tweeted that he was considering sending detained immigrants to Democrat-led sanctuary cities as punishment for refusing to grant his wishes. 

From one angle, Trump's approach to reelection looks like a disaster: he has middling approval ratings, slim hope of passing new laws, and is attacking his own administration. 

On the other hand, there's no sign at all that Republicans are abandoning him. Fighting furiously for immigration restrictions—even quixotic, unconstitutional ones—may be more important, electorally speaking, than achieving them. And whether Powell is motivated by fear of Trump or is just less fearful of inflation, a dovish Fed is the gift every president hopes for. On Sunday, a Goldman Sachs report found that “the majority of market participants expect Trump to win a second term.”  

Election Day is still a long way off. But Trump's current Gallup approval rating (45 percent) is higher than Barack Obama's was in April of his third year (44 percent) and only a hair below Bill Clinton's (48 percent). At least for now, Trump's go-it-alone strategy looks perfectly viable. 

To contact the editor responsible for this story: Jillian Goodman at jgoodman74@bloomberg.net

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