Trump has every right to be Fed up with Powell

As the Federal Reserve begins its two-day meeting Tuesday, to presumably raise rates to 2.5%, President Trump is out there battling the central bank on its direction and policy.

Trump tweeted Monday:

It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!

Trump is correct in his brief economic assessment on global growth, where America’s say 2.5% rise in GDP looks a lot better than Europe or China. As well as the lack of any meaningful domestic inflation.
The Fed’s concern earlier this year was asset bubbles leading to inflation. What does that mean in layman’s terms: Americans were starting to do well in the stock market and their paychecks with the tax cuts after a decade of economic malaise were bringing them a sense of pride and contentment.
Well we can’t have that, the Fed seem to say. And sure enough with four hikes this year in rates the Fed has wiped out all gains in stocks this year and then some.
So what is the end result for America because of the Fed’s policies?
The rate hikes have muted the economic benefits of the tax cuts, by taking away revenue growth to pay for the tax cuts. Tax revenue is up slightly this year over the last couple, but if the Fed was not slamming on the brakes, then the economy would be moving ahead at closer to 4% GDP.
This tax revenue growth could allow the federal government to actual pay for the runaway entitlement programs and actually be able to cut budget deficit growth.
I don’t anticipate the Fed pausing and not raising rates at Wednesday’s meeting since it was telegraphed to the market for the last three months. Yes, the market would spike if they did pause, but then start asking itself what does the Fed know and probably sell of again.
I do agree with the President on the need for Fed chief Jay Powell to “take the victory” and pause after this hike. Let’s see where the economy sits in June 2019. It takes six months before you get the full meaning of how your economic policies are working.
I’m assuming that’s all that is at work here, a disagreement on economics and not something broader.

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Fed chief Powell’s actions prodding Trump to change Fed’s structure

The Federal Reserve is believed to be raising rates on this coming Wednesday by a quarter point putting the Fed Funds Rate at 2.5%.

Fed chair Jay Powell, while saying the Fed is data dependent for future rate changes, seems to have walked back a bit his projected three raises in 2019.

However if the Fed is data dependent as Powell has said, the Dec. 19 decision should be to stand still if you are solely working off the dual mandate of the Fed to be guarding against inflation, while creating full employment.

The Fed’s biggest concern when it came to inflation was asset bubble inflation as in the stock market rise since President Trump’s election. If you look at wages, producer prices and consumer prices there is little in the pipeline suggesting that inflation will be above the targeted 2% annual growth that the Fed targets.

While Powell was Trump’s pick to lead the Fed after Janet Yellen stepped down, I believe Treasury Secretary Mnuchin was the driving force behind the pick and Trump knew little of Powell’s thoughts on economic and monetary policies.

The President’s tweets on Fed moves and speeches tells us that Powell & Co have a differing agenda than The White House when it comes to the economy.

Powell’s four rate hikes since March have certainly taken the wind out of the sails of stocks and house prices. These are the assets of the American people and Trump sees Powell as undermining his economic growth prospects for these people.

After a decade of near-zero rates, where Americans were battered by no interest on savings and low-to-nil wage gains, the Fed needs to get its foot off of the brakes and that is what the president is saying.

Only through growth — and that’s what the tax cut was meant to spur — can the US move forward on reducing its $21 trillion debt level. If you give a tax cut and then cut the economy at its knees with tightening credit, then you set yourself up for a deflation/stagflation scenario that could arrive closer to the 2020 election cycle.

This is not lost on President Trump. And this is why we are hearing about structural change coming to the Federal Reserve in 2019.


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Stock market gyrations, Google’s China fire

What is going on in the stock market?

The volatility and price swings of shares just does not ring true to this veteran market watcher. The year-end market moves this year defy logic. As many economic reports — while always questionable, but the only barometer used by the Street — show things are still better than the numbers from the Obama era economic malaise, they seem to fall on deaf ears.

This type of volatility has to be coming from institutional investors since the gyrations are so violent and sudden. I don’t think the incoming Democratic-controlled House is the root, since markets prefer divided government as they’re less likely to get any meaningful regulations through Congress.

Fed chairman Jay Powell needs to step aside and let his previous rate hike work through the economy and see where we stand in six months. Since there are words to that effect the Fed will more likely raise rates next week and that is baked into the market, but the language in the press conference will have greater impact.

One theory I believe is that the black box computer trading programs may have reach a critical level where the algorithms control far more shares than human decision makers, which gives you markets swing back and forth with more than 500 points in less than an hour on very little news.

Many market pros have their own interpretations, which are rooted in the past, but I think this market is being honed to towards more non-traditional sources of “news”. While veteran market makers would here rumors that could create price swings but there was discretion. Now these algorithms may take “rumors” or fake news with more seriously without discernment.


Does anyone else find it odd that hours after Google CEO Sundar Pichai testified in front of the House Judiciary Committee on a host of issues including the search giant developing a censored product for China a fire develops in its offices there.

Breaking: Fire breaks out in Raycom Info Tech Park, which houses Google’s office, in the Zhongguancun technology hub in Beijing, China.

https://twitter.com/PMBreakingNews/status/1072705722746585088📁

Was the order given to cover tracks on the program called Dragonfly, which was a government-approved search engine for the Chinese market, which is heavily censored by Google for access to the market.

On Tuesday Pichai was questioned numerous times during his testimony of censored search. Each time he answered with a variation of “We have no plans at this time to launch in China.”

Perhaps that comment is now true since the fire has pushed back the launch of any product.

 

 

More evidence Trump is fed up with Federal Reserve

As the US came off the eight years of Federal Reserve controlled economy during the Obama administration’s anemic efforts to grow out of the Great Recession.

In January 2016, I wrote the most viewed post in the history of this blog. It touched on what I called  The Greatest Transfer of Wealth in History.

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Are the markets a tell on the midterms?

Are we seeing real-world exercises being conducted as a result of President Trump’s ongoing battle with the Deep State?

All of a sudden last week large institutional investors woke up and decided that the bull market was coming to an end and the Federal Reserve, which has been begging for the last decade to get the inflation rate close to 2 percent, discovered that runaway inflation was a real concern and said it would raise rates “aggressively” to combat it.

Now admittedly no market only rises with no corrections or pullbacks and it may be a little early to attribute the latest equity choppiness to anything more than profit taking and it being October, but the timing is curious.

The markets also have international concerns in Italy and China, which could be the contagion to hurt US growth and need to be watched carefully, but not to the degree we are seeing right now.

Trump did pick Fed chief Jerome Powell and he has reigned in the number of voices in the Fed speaking on the economy. Under ex-chief Janet Yellen it seemed even the maintenance staff at the Fed were allow to opine on monetary policy for TV audiences.

The President on Wednesday questioned the Fed’s rhetoric on inflation to reporters saying he thought it was crazy for Powell & Co. to be so aggressive in its stance on raising rates.

You see the Fed doesn’t really have to raise rates to curtail growth right now. The threat alone is enough to squeeze lenders into jacking up loan rates or to call in more questionable loans, which all dampen continuing growth. And as markets fall margin calls can steepen the decline as investors sell what they have to cover other bets.

So let’s keep an eye on this as the midterms near. I’m sure The President will have much to say should this sell off continue.