U.S. Interest Rate Expectations Set By King Trump…Not Fed Chair Powell – ValueWalk Premium

U.S. Interest Rate Expectations Set By King Trump…Not Fed Chair Powell


Donny T. = Quasi Fed Chairman

Powell + FOMC = 100% Irrelevant

Q1 hedge fund letters, conference, scoops etc

kalhh / Pixabay

Just About 6 Months Ago Fed Chairman Jay Powell Prepared The Financial Markets For 2-4 Interest Rate Hikes In Calendar ’19…And The Fixed Income Market Digested His Fed-Speak And Re-Priced Appropriately.

As It Were…This Was Powell’s Last Stand.

Now…Half A Year Later…The Bond Markets Have Sharply Reversed And Are Pricing In 2.5 Interest Rate Cuts By New Years Eve ’19.

That = An Enormous Pivot In Such A Short Period Of Time…So What Gives?

Basically…Donny T. Has Snatched Control Of Interest Rate Policy Away From The Federal Reserve By Publicly Challenging And Chastising Their Tactics…Essentially De-Legitimizing Powell.

And Surprisingly…Powell Has Politely + Simply Acquiesced.

Furthermore…This Policy “Pivot” Has Not Much To Do With U.S./China Trade Policy…Despite A Calculated + Coordinated Fed-Speak Message To The Contrary…Likely Advised + Crafted By The Prez.

At This Point It Is Quite Clear That Powell’s Position As Chairman Of The Federal Reserve = Too Big For Him.  And I Don’t Mean The Mass Of Data Analysis And Interpretation.

I Mean…The Lack Of Rhetorical Counter-Punching Back At Prez. Donny T…As Powell Willingly Absorbs Twitter Jab After Twitter Jab…Knees Buckling…Ready To Fall To The Canvas…Waiting For The Inevitable Knock-Out Blow To The Jaw…Seemingly Eager To Admit Defeat.

Powell = Just Too Malleable + Soft…Bleeding On Trump’s Command + Cowering To Trump’s Demands…Which…Unfortunately…Fits The Well Worn Script Of Trump Hires.

You See…Donny T. Typically Does Not Select Strong + Talented Candidates …Paradoxically…He Usually Chooses The Weakest…So That He May Easily Humiliate + Intimidate His Appointees If They Do Not Strictly Adhere To His Wishes i.e. Former Attorney General Jeff Sessions.

So Donny T. Wanted Lower Interest Rates And Now He Has Them….As Most Of The Yield Curve Has Already Bowed And Obeyed…Despite No Official Rate Cuts By The Fed.

Specifically…Since December ’18…The Yield Curve Has Flattened + Inverted From 1 Month To 10 Years…Despite A 38% Yr/Yr Increase In The U.S. Budget Deficit…Increasing The Supply Of U.S. Sovereign Debt Issuance.

For The Fed The Easiest Way To “Un-Flatten + “Un-Invert” The Curve…And To Dismiss The Recessionary Concerns That An Inverted Yield Curve Historically Suggests…Is To Slash Short Term Interest Rates.

Naturally…The Fed Will Cave…They Always Do.

Nevertheless…Many Legitimate Economists Question If The Fed Should Actually Cut Rates = Which Is Quite Reasonable…As U.S. Economic Data Has Held Up Relatively Well…Thus Far In 2019.

Unemployment Is Near A 50 Year Low…Jobless Claims Are Also Near A Historic Nadir…And…Ironically…Inflation [as measured by The Dallas Fed’s Trimmed Mean PCE] Is Steady At/About The Fed’s  2.0% Target…And Has Been So For The Prior 6 Months.

BTW…Powell Has Recently Cited This Measure As His Preferred Inflation Metric.

Still…Very Few Economists Question If The Fed Will Cut Rates…As They Too Realize That The Fed’s Power Was Recently Seized By 1600 Pennsylvania Avenue.

To Powell’s Embarrassment…The Markets Have Endorsed The Seizure.

The Timing Of The Inevitable Rate Cuts?  Just About Anytime…As The Fed’s “Credibility” Has Already Been Annihilated.

The Only People Who Do Not Recognize This Destruction In “Credibility” Regularly Meet In DC’s  Eccles Building Every 6 Weeks To Discuss U.S. Monetary Policy/State Of The Economy.

The Fixed Income Markets’ Message To The Fed Is Quite Blunt…

“Donny T. Sets Interest Rate Policy Now. Your Job Is To Simply Follow His Lead + Rubber-Stamp His Points Of View.  However You Wish To Position And Rationalize This Instructive …So Be It.”

Recall That Trump Already Bullied The Fed…Earlier This Year…Into Quickly Halting The Modest Balance Sheet Run-Off…After Years Of Contemplation + Study By Fed Officials.

Powell’s Sudden Policy Backtrack…On A Strategy That Former Fed Chair Yellen Characterized As “Like Watching Paint Dry”…Permanently Signaled Powell’s Lack Of Positional Fortitude…AKA…He Folds Easily.

So It Seems Trump Is In Total Control Of The FOMC…Despite His Over-Simplified Conclusions As To The Complex Interplay Of The Global Capital Markets.

Plus…Assuming Control Did Not Take Donny T. Too Long Or Too Much Effort…Just A Series Of Sharply Worded Tweets Over 4-5 Months + An Early February Steak Dinner At The White House With Both Fed Chair + Vice-Chair Powell And Clarida Respectively.

So King Trump Wins Again…This Time…Versus The Easiest Of All His Adversaries.

Powell Likely Would Have Fallen Backwards From Just The Slightest Breeze Initiated By A Blow From Donny T.’s Lips.

The Tweets + Steak Dinner…A Colossal Waste Of Twitter Capital + Quality Beef.

Article by Global Slant

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