For months, the Trump administration has been touting low unemployment numbers as evidence of a strong underlying economy. But if the economy is so strong, why can’t it take any more interest rate hikes?

White House National Economic Council Director Larry Kudlow insisted on Friday that the economy still “looks very good."

Yet Kudlow conveyed a near panicked concern over interest rates. He called on the Federal Reserve to take the drastic step of an immediate 50 basis point reduction in its benchmark rate.

President Donald Trump’s nominee to the Fed Board of Governors, Stephen Moore, has similarly called for the central bank to start cutting rates.

A recent development that likely alarmed the White House’s economic team is the partial inversion of the yield curve following the Fed’s last meeting. When shorter-term Treasuries yield more than longer-term Treasuries (an inversion), it suggests investors are pessimistic on economic growth. An inverted yield curve often presages a recession.

If the Fed acted immediately to slash short term rates, it could undo the yield curve inversion.

President Trump also wants the Fed to stop reducing its balance sheet, which since the 2008 financial crisis has been loaded up with trillions of dollars in Treasury and mortgage-backed securities.

Fed Chairman Jerome Powell said he wanted to “normalize” rates and shrink the central bank’s balance sheet. But it now seems clear even to Powell that monetary policy will have to continue operating in crisis mode in order to stave off a recession.

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