Can't Get No Satisfaction

President Trump has already won his argument for loosening Federal Reserve policy. While Fed Chair Jerome Powell can boast all he wants about the sanctity of the Fed’s independence, the fact is he and his FOMC followers knuckled under to the pressure Trump – and the financial markets – exerted on them to call a halt to any more interest rate increases for a while. Indeed, the discussion has since moved to cutting interest rates, a thought that seemed unimaginable just a few months ago.

Back in October, we were talking about how many rate increases we could expect this year. Now that any rate hikes are basically off the table for the foreseeable future, according to the Fed, the talk has shifted to a potential rate cut, possibly before the end of this year.

So why can’t Trump be satisfied with that? Instead, he’s sabotaging his chance to fill the two remaining seats on the Fed’s board of governors by publicly considering two people – Herman Cain and Stephen Moore – both of whom have way too much political baggage to hope to be confirmed, never mind actually nominated (remember, Cain was never formally nominated before he withdrew, nor has Moore).

While Fed independence is certainly a noble idea, the fact is that every person considered for the board has some political taint to them, expressed or not. Otherwise, they wouldn’t have been nominated in the first place. We all need to realize that and not try to pretend otherwise. Jerome Powell was nominated by Trump because he’s a Republican, while his predecessor, Janet Yellen, was nominated by President Obama because she’s a Democrat. Simple and reasonable. Continue reading "Can't Get No Satisfaction"

Easy Money vs. Free Money - Choose Your Poison

When I was in high school, one of my political science teachers explained to us that the political spectrum wasn’t so much a straight line – with the liberals on the left and the conservatives on the right – but was really shaped like a horseshoe, with the far left and the far right moving closer together at the outer fringes to the point where they almost meet. That the name-calling and the accusations – and the behavior – are most vehement at the outer edges doesn’t change the fact that the things they say they believe in are virtually indistinguishable from each other, only the labels are different.

President Trump’s plan to nominate Herman Cain and Stephen Moore to the Federal Reserve is a good example. These two men have undisputed conservative credentials and are also in sync with the president’s demand that the Fed adopt an easy money policy so as not to undermine U.S. economic and stock market gains. Not surprisingly, that makes them completely unacceptable to the left.
There’s been the obligatory hand-wringing and phony outrage by their opponents decrying that Trump “means to remake the 105-year-old agency into a partisan tool” (the Washington Post) and “trample over the Fed’s independence” (the Financial Times). We got the same blather when Trump nominated someone to the Supreme Court – which, we’ve been told, is completely independent and never, ever takes politics into consideration when it decides cases, and justices are never, ever chosen because of their perceived political views.

Already, even before they’ve been formally nominated by the White House, Trump’s opponents have started to dredge up all the dirty laundry they can about Cain – alleged sexual harassment eight years ago – and Moore – all the juicy details about his divorce. Whether or not those past sins will be enough to torpedo their nominations remains to be seen. But it’s likely their personal peccadillos – not their actual monetary and economic philosophies – will be the main focus of their nomination hearings, should they even get that far. Continue reading "Easy Money vs. Free Money - Choose Your Poison"

How I Learned To Stop Worrying And Love The Deficit

John Maynard Keynes is generally given credit for the economic axiom, “We owe it to ourselves.” That idea has caught fire with the left in our country, who are now trumpeting a world where government deficits and debt – at least at the federal level – simply don’t matter, because, well, see Lord Keynes.

This idea even seems to have gotten sympathy – or at least, seems to be taken more seriously than you would have thought – by formerly level-headed financial publications such as the Wall Street Journal and Bloomberg BusinessWeek. Both of them have published lengthy stories recently which have come to the same conclusion, namely that, yeah, this could actually work.

Last week, the Journal’s story was headlined “Worry About Debt? Not So Fast, Some Economists Say,” supported by the subhead, “U.S. deficits may not matter so much after all—and it might not hurt to expand them for the right reasons.” A couple of weeks before that Businessweek’s cover story featured the grande dame of the so-called progressive wing of the Democrat Party, Congresswoman Alexandria Ocasio-Cortez. Continue reading "How I Learned To Stop Worrying And Love The Deficit"

Shutdown Or Not, The Fed Abides

Here’s an additional reason to be thankful for the independence of the Federal Reserve. Since the Fed does not receive funding through the congressional budgetary process and is largely self-funded through the interest on its massive government securities portfolio, plus its many other activities, we don’t have to worry that this week’s Federal Open Market Committee meeting will fall victim to the partial government shutdown.

But how much will actually happen at the meeting that can be expected to move the financial markets?

One thing we do know is that Fed Chair Jerome Powell will hold a press conference after the meeting ends at 2:00 EST. Last summer Powell announced that he will hold a presser at the end of each of the Fed’s 10 scheduled meetings, not just every three months.

But it’s unlikely that the Fed will raise interest rates at the meeting, after Powell largely put the kibosh on that idea late last year, when under extraordinary pressure from President Trump and just about everyone investor within reach of a microphone he and his Fed colleagues surrendered and said “no mas” to any more monetary tightening for a while. Continue reading "Shutdown Or Not, The Fed Abides"

Sorry, Virginia, There Is No Santa Claus

So who looks more right now, President Trump or Federal Reserve Chair Jerome Powell? Based on the market’s reaction to last week’s Fed rate increase, we’d have to say it isn’t Powell.

That doesn’t mean he isn’t right, at least looking at the situation objectively and what Powell is supposed to be doing as Fed chair. While it’s certainly arguable that the Fed does need to take a pause from raising interest rates for a few months to fully digest the recent economic data, which is showing the economy slowing some – but nowhere near a recession – it is right to continue tightening, no matter how unpalatable that is to the market.

Quite frankly, most of the calls for the Fed to refrain from raising interest rates are blatantly self-serving. Of course, investors don’t want the Fed to ever tighten policy, because, as we’ve seen, higher rates mean lower stock prices. Not many people like that, especially when it’s been ingrained in them over the past 10 years that stock prices only go one way – up – and that “buying the dips” is a no-lose strategy to make up for past losses.

Welcome to reality, folks. Continue reading "Sorry, Virginia, There Is No Santa Claus"