Home Economy 4-D Chess? Trump May Get Fed Pause He Desires After “Self-Inflicted” Econ...

4-D Chess? Trump May Get Fed Pause He Desires After “Self-Inflicted” Econ Damage

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President Donald Trump may get the interest rate-hike pause he wants after abysmal December performance, softer 2019 economic forecasts, and rumors of Trump firing Fed Chairman Jerome Powell have rattled investors.

According to Bloomberg, this is “self-inflicted economic damage,” by the President. As we noted last week:

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The S&P 500 fell 2.7 percent on Christmas Eve, bringing U.S. stocks to the brink of a bear market after a drop of almost 20 percent from a September peak. Shares rallied Wednesday, snapping a four-day losing streak.

The latest drop came after Bloomberg News reported Dec. 21 that the president had discussed firing Fed Chairman Jerome Powell following the central bank’s Dec. 19 decision to lift interest rates for the fourth time this year. –Bloomberg

While the Fed has offered an economic forecast of 2.3 percent growth for next year, the latest hike was accompanied with a signal that they would likely slow the pace of increases next year.

Bloomberg, meanwhile, thinks the Fed’s outlook is likely to be tempered by market volatility as “falling stocks hurt consumption by reducing household wealth,” while business confidence may take a hit as volatility rises, the cost of capital goes up, and uncertainty over trade wars factor in. Of course, Trump’s ongoing conflict with the Fed will likely contribute as well.

The shaken confidence that this market correction reflects is very likely going to affect investment and hiring,” said Julie Coronado, founder of Macropolicy Perspectives in New York – who adds that the recent plunge in the stock market will likely dampen 2019 growth forecasts – possibly shifting any further Fed rate hikes into the second half of next year.

Former Treasury Secretary Larry Summers suggested on Wednesday that his previous odds of a recession of “a bit less than 50 percent” are now at 60%, while knocking Treasury Secretary Steven Mnuchin’s weekend announcement that they had made a “liquidity test” call to bank CEOs.

 

Bloomberg does note though that other economists remain unconvinced that the market has gone anywhere near levels which would change the Fed’s course.

“The Fed’s threshold for reacting to these types of things is really, really high,” said Jeffries senior economist Thomas Simmons, who said that the central bank wants to avoid giving investors the impression that it will roll out the unlimited safety net if shares plunge. “You really have to go back to 1987 to find a time when the stock market influenced monetary policy significantly.”

Simmons also suggested that tax selling and low year-end volume may be exaggerating the drop in stocks, adding that “The first couple weeks of January will be telling as to whether this selling in December was technically related or actually fundamentally based.”

via zerohedge

1 COMMENT

  1. I think if Trump were able to “out” the Federal Reserve Bank, this nation may go through a bit of a hard patch. But, in the end, America will be be the better for it! I, personally, am willing to weather a bit of a storm for this just cause.

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