Emboldened President Trump Wants More Fed Stimulus
Author: Greg Valliere
March 26, 2019
RIDING A WAVE, THE FAVORITE TO WIN IN 2020, Donald Trump is emboldened; he won’t let Democrats off the post-Muller hook. But let them them debate over William Barr — Trump has already moved on to a new target: the Federal Reserve, which will come under increasing pressure to cut interest rates.
ALL HELL MAY BREAK LOOSE ON APRIL 26, when first quarter GDP data will be released. The closely-watched Atlanta Fed prediction is for a puny 1.2% rise, up from its previous forecast of 0.3% growth. Whatever the number, it probably will provoke the President to call for an interest rate reduction; Chairman Jerome Powell’s pledge to refrain from raising rates will not be sufficient for Trump.
FEDSPEAK SHIFTS: Led by Powell, consensus at the Fed has shifted dramatically; most of the central bankers have accepted that a there will be a long stretch, perhaps through year-end, of no rate hikes. The revered former Chairwoman, Janet Yellen, said yesterday that a rate cut may be necessary (despite extraordinarily stimulative fiscal policy, as deficits surge).
COULD THIS MASSIVE STIMULUS REVIVE INFLATION? Well, that’s what the Fed is hoping for. While most officials believe a U.S. recession isn’t imminent (despite global headwinds), they want higher inflation, animal spirits, etc. The ultra-low interest rate experiment that Yellen embraced was abandoned in 2018, but it’s clearly back again.
THE STEPHEN MOORE FACTOR: The affable supply-side evangelist has been nominated to serve on the Fed Board. Much has been made of Moore’s shaky forecasting track record and his clear political ties to the White House, but we think concerns are overblown that he somehow will single-handedly undermine the Fed’s independence.
IF CONFIRMED BY THE SENATE (Republicans have 53 members, and virtually all of them are fans of Moore), he would become the Fed’s most outspoken official, a noisy advocate of stimulative monetary policy — but there are 12 voting members on the FOMC. In any event, Moore would increase a perception that the Fed is increasingly dovish.
THE EMBOLDENED PRESIDENT: As our friend Jeff Cox wrote on the CNBC web site yesterday, Trump may become emboldened on several fronts. We think Trump is in no rush to finish a China trade deal, and may actually be increasing his demands. And his administration proclaimed last night that it will seek to abolish all of Obamacare — a move that some Republicans facing tough 2020 elections will not welcome.
BOTTOM LINE: We’re about to see a classic case of a president getting some political capital, and spending it. Trump will first apply a thrashing to the talking heads and politicians who predicted his incarceration, and then he will move on to his agenda: a tough trade deal with China; relentless advocacy of a border wall with Mexico; perhaps a massive infrastructure bill; and the most important issue for the markets — making sure the Fed stays easy as the 2020 elections approach.
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