President Trump was about the Federal Reserve being too hawkish with monetary policy in 2018. And he’s correct now to suggest the Fed should be easing more aggressively.
To be clear, the Fed was correct to raise rates and attempt a balance sheet normalization, the pace of both operations was far too aggressive. As early as mid-2018 it was clear to me that the markets were signaling that Fed policies were killing growth.
Let me give you an example.
Due to its many industrial uses, copper is extremely sensitive to economic growth. When economic growth is accelerating, copper rises. When economic growth is slowing, copper falls.
With that in mind, note in the chart below that copper initially rose quite a lot during the first year of the Trump Presidency (green box =2017). This signaled higher economic growth to market watchers such as myself.
However, once the Fed began its aggressive rate hike schedule along with its balance sheet normalization, copper entered a steep downtrend (red box=2018). As you can see, as early as June/ July 2018 it was clear the Fed was killing economic growth as copper entered a free-fall.
How the Fed failed to see this is beyond me as this kind of collapse was playing out in multiple sectors all linked to growth (copper, steel, industrials, etc.). I repeatedly commented on this, but to no avail.
Perhaps, had the Fed slowed the pace of the rate hikes and balance sheet normalization, we would not have had to experience that horrible stock market sell-off in late 2018.
Note also, it was only in early 2019 when the Fed reserved course with its policies and began talking about rate cuts and ending its balance sheet normalization that copper began to rally again. And as of late 2019, it has finally broken its downtrend (purple lines).
This tells me that growth is coming once again. The markets, as you know, are forward looking.
So once again, President Trump was right concerning the Fed killing growth. And by the look of things with copper today, we’re about to experience another economic boom, NOT a bust… which suggests President Trump winning a second term in a landslide.
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Graham Summers
Chief Market Strategist
Phoenix Capital Research