The Trumpster has woken up the market by targeting the Fed
One way or another we’ve had an injection of volatility into the market. Trump saying that Fed chair Powell should have helped him out by staying accommodative and that he “wasn’t thrilled” by Powell hiking rates, has put the proverbial cat among the pigeons. Powell was Trump’s choice for the job and when he nominated him he said;
He’s strong. he’s committed, he’s smart” and that “I’m confident that with Jay as a wise steward of the Fed, it will have the leadership it needs in the years to come”
Trump has held back from going too deep on his criticism of Powell, mainly keeping it to the line that the Fed are tightening while other central banks remain more accommodative, which by policy divergence, is affecting currencies. Unfortunately, that’s the way of the world Mr T.
What Trump has done is cause the market to question whether Trump is going to poke his nose further into the Fed’s business. That’s bringing another round of uncertainty. It’s also heaped a lot of pressure on Jackson Hole, where Powell is due to speak. For right or wrong, the market is going to be looking for some form of reaction from Powell. Considering it’s Friday, you’d think Powell would already have his speech written, so we’ll know that any mention of the thoughts of Trump or the administration will be a last minute addition. The likelihood is that maybe he’ll steer clear of getting involved and the most we’ll get is a mention on the importance of the Fed’s independence.
Whatever is in Powell’s speech, the market is now going to be wanting some reassurance from Powell on the path of rates. It’s priced in four this year and if there’s any signals that that’s not happening then there’s going to be disappointment. That disappointment will be worth double because the market might now tie that in to Trump’s comments. Powell’s stuck now because if he never was going to mention policy in detail, that could be taken the wrong way now.
Trump continues to heap pressure on himself and the US. He’s in a trade mess, he’s in a Russian mess, he’s in a North Korea mess, he’s in a Turkey mess and now he’s getting himself into a Fed mess. That’s a lot of negatives and it could start to reverse the sentiment that the US is the best and safest yield destination, and that could be all that’s needed to change the recent sentiment for a lot of currencies, especially the Euro.
I can’t remember the last time a Jackson Hole brought us anything juicy but this year is now set to be different. Thanks Don.
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I don’t think this is going to matter very much in the long run, and certainly it’s very unlikely to change even a single word of what Powell is going to say at Jackson Hole.
That’s my thinking too but it will stand out like a sore thumb if he does mention anything, even in a roundabout way. Still, that won’t stop the market getting irrational over it 😉
I’m thinking it’s at least an even chance that there’s a global synchronous slowdown coming as soon as mid ’19. That, and maybe the yield curve (although Fed members swear the curve is “different this time”), may slow the Fed down anyway. And of course if the House flips, and Mueller’s report is as damning as I suspect it will be, Trump will find himself somewhat constrained.
Trump will do his usual of course. Should he survive, and markets go soft, Powell & Co will be his whipping boys and girls. Should a slowdown come and the Fed backs off a bit, and markets don’t suffer too much, Trump will try to take all the credit for everything. 🙂
I just can’t see the Fed raising too much next year unless the US econ booms and inflation erupts (but even that will be down to what type of inflation). 4 hikes in a year is a lot, especially coming after everything else. It’s always been a building of rate margin for the next poop-fan moment.
Powell could possibly add a few words to his already prepared speech without coming over to much as the teacher’s pet.
1. Data dependent, rate path not fixed or
2. Noting other CB’s are slow movers or
3. Recent reactions by “trade partners” have increased uncertainty.
That’ll give Trump what he wants without the Fed needing to alter anything for now.
In the meantime the impact of the FOMC minutes reduced to nihil me thinking
Yep. Unless there’s any real shocks in the minutes it will pass without a fuss.