keynote

What could stave off a crash — for now?

Shutterstock
President Trump made news by criticizing the Federal Reserve for raising interest rates.
Posted

While technically, President Donald Trump has no day-to-day management authority over the Federal Reserve, he can with “cause” fire Fed Chairman Jerome Powell, who he appointed, and the U.S. Senate would have sign off on any replacements he recommends.

The Federal Reserve and its board of five governors, also appointed by the president, serve as an independent body to the executive branch of government.

The question of what control President Trump has over the Federal Reserve is top of mind since he began a very direct public campaign lambasting Powell and the Fed for raising rates too aggressively.

With rising rates finally attributed in the media to equity market declines, President Trump called the Fed his “biggest threat,” further stating, "the Fed has gone crazy… they’re going loco."

He also said: “The U.S. is raising rates while the dollars (sic) gets stronger and stronger with each passing day, taking away our big competitive edge."

A DIFFERENT OPINION AS CANDIDATE TRUMP

But his current stance is a 180-degree turn from what he has said before:

Candidate Trump in September 2016: “They’re keeping the rates down so that everything else doesn’t go down…We have a very false economy.”

In 2015, Trump stated: “Janet Yellen (the Federal Reserve Chair) is highly political and she’s not raising rates for a very specific reason: Obama told her not to because he wants to be out playing golf in a year from now and he wants to be doing other things and he doesn’t want to see a big bubble burst during his administration.” 

In 2012, Trump told CNBC: “They’re creating phony numbers and they’re doing it through stimulus and the stimulus, many people would say, is the worst thing that can happen.”

He added: “The numbers are false; they’re being created and people like me may benefit, but it’s ultimately not good for the economy,”

Even as far back as 2011, Trump is on the record: “The Fed’s reckless interest rate policies will cause problems in the years to come. The Fed has to be reigned in or we will become Greece.”

But what we have been forecasting for over a year is now making its way into the mainstream business media narrative: “It’s Interest Rates, Stupid.” As the era of cheap money policies ends, the state of most world economies simply cannot tolerate any further rate hikes. The debt can’t be managed and markets and economies will suffer.

Trump knows that. And that’s why he’s changed his tune… he doesn’t want a massive recession under his watch. TJ


TREND FORECAST

While Powell has said he’s undeterred by the president’s remarks, it is certainly possible the Fed could be pressured by President Trump or other factors to delay interest rate hikes, but all that will do is delay the inevitable. Already, even modest increases have deepened downward pressures on real estate markets in many nations and economies worldwide and showing the early signs of affecting consumers in the U.S.