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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Trump’s new capital gains tax cut spurs Dems again

President Trump and Treasury Secretary Steven Mnuchin floated the idea of a $100B tax cut for Americans through a new capital gains tax change.

The administration is looking at indexing capital gains to inflation. Meaning if you bought an asset for $200,000 in 2001 and sold it in 2018 for $2 million the tax owed would be $1.8 million. When you account for inflation the $200K is $600K so the taxable profit would be  $1.4 million versus $2 million.

While the New York Times says this is targeted to the wealthy, this is true however capital gains taxes do reach down to what’s left of the middle class setting up their retirement.

Given the run up in the stock markets over the last 20 years, there are many in the middle class that could fall into this category.

But of course the Times went with a class-warfare angle to the story, suggesting that its a give back exclusively for the rich. Just like the prior middle-class tax cut, this move, which may attempt to bypass the need for Congressional action, are parts of Trump’s campaign pledge to put more of the people’s resources back in their hands.

Of course the Anti-Trump forces are already out in force screaming about growing deficits as if they have nothing to do with record US debt levels.

“At a time when the deficit is out of control, wages are flat and the wealthiest are doing better than ever, to give the top 1 percent another advantage is an outrage and shows the Republicans’ true colors,” said Senator Chuck Schumer of New York, the Democratic leader. “Furthermore, Mr. Mnuchin thinks he can do it on his own, but everyone knows this must be done by legislation.”

The rollback of the economic philosophy that the few will pay for the many of the last administration, along with the changing of trade policies to put Americans first will be two of Trump’s major milestones.