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.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI is registered as a portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2020 AGF Management Limited. All rights reserved.