Back in 1925 President Calvin Coolidge famously said, “The business of America is business.” Apparently, this is still true even if the current administration more closely resembles the Five Families rather than the worthy successors to Silent Cal.
Even as President Trump’s new communications director is “front-stabbing” his White House colleagues and Republicans in Congress can’t get anything done about health insurance reform except make themselves look foolish – and without any help from the Democrats – the economy seems to roll on regardless. Last week the Commerce Department reported that the American economy grew at an annual rate of 2.6% in the second quarter, the first full quarter of Donald Trump’s presidency. That was up sharply from the first quarter’s downwardly revised 1.2% rate and the second strongest rate in the past eight quarters.
That managed to happen thanks to some extent from the hope and anticipation of major health insurance and tax reform, not their actual enactment. Imagine what might happen if our lawmakers actually do what they’re supposed to be doing and those things become reality?
A more pertinent question for this column is: Is that growth rate strong enough to get the Federal Reserve back to raising interest rates again and start its “balance sheet normalization program,” i.e., trimming its $4.5 trillion securities portfolio?
Last week, we know, the Fed punted on both of those issues, holding short-term interest rates unchanged while saying only that it would start the portfolio unwinding process “relatively soon, provided that the economy evolves broadly as anticipated.”
The Fed doesn’t meet again until September 19-20. Clearly, a lot can happen between now and then – some of it actually positive for the economy. That means a rate increase at that meeting isn’t totally out of the question, which most people right now seem to doubt.
So what’s behind this disconnect between the headlines coming out of Washington and those that impact the vast majority of Americans, like the strength of the economy and the stock market, which continues to move higher? How can the economy and financial markets be running so well even as Washington can’t get its act together?
Greg Ip had an interesting article in the Wall Street Journal last week that sheds some much-needed light on why the economy is moving forward despite the seeming chaos in Washington.
“Six months into his presidency, Donald Trump’s detractors portray him as a do-nothing president with no big wins on issues such as health care, taxes, and infrastructure,” Ip writes. “That may be true if the benchmark is legislation, but that is an incomplete benchmark. To gauge a president’s impact, you have to go beyond the laws he signs to the vast authority he wields through departments and agencies that apply the law. On that score, Mr. Trump is on track to do a lot.”
Indeed, one key area where a lot is in fact happening is on the regulatory front, one of Trump’s main issues during the campaign and which tends not to get a lot of attention. Behind the media headlines about purported administration chaos, legislative failures, supposed Russian collusion and other alleged scandals, things are getting done to ease the burdens on American business, and we may be already seeing that impact in the improved GDP numbers.
“Away from this drama, Mr. Trump’s Labor Department moved to undo Mr. Obama’s expansion of eligibility for overtime pay, financial regulators dropped efforts to tighten restrictions on banker pay, and the Interior Department signaled it would rescind proposed rules on oil and gas fracking on federal land,” Ip notes. Since Trump took office, “rule-making has changed dramatically,” he adds. Regulatory actions are down 40% from their peak under Obama in 2011 and at a 17-year low. Notably, fully a third of 66 completed actions at the Environmental Protection Agency were rule withdrawals, not new rules. The Food and Drug Administration is pushing faster drug approvals, Ip reports.
In other words, Trump is delivering on many of his campaign promises. It’s just that nobody hears much about it.
“Of course, the fruits of Mr. Trump’s presidential actions, like Mr. Obama’s, could be swept away as soon as another president takes office,” Ip cautions. “But for the time being, don’t underestimate how much a president can shape the economy with no input at all from Congress.”
The GDP number gets revised one more time between now and the September Fed meeting, on August 30. So we’ll be able to tell how strong overall U.S. economic strength really is. In the meantime, lots of other important numbers will be coming out, including this Friday’s report on the July employment market. Those are the headlines that really matter.
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INO.com Contributor - Fed & Interest Rates
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.