by Oliver Donaldson
In my last article I wrote at length about the near-term challenges that are threatening the recent bullish run of the so called “Trump Rally”. These economic factors will probably lead to a correction any time now and it would only be natural that the market would return higher again, as it usually does in a boom and bust cycle. Though this is the usual economic cycle for America, the Trump administration will be challenged even further by one of the most powerful forces in Washington; Janet Yellen and the Federal Reserve.
Yellen and the Fed will closely watch as Donald Trump attempts to fulfill his campaign promises to the American people. All throughout the campaign, Trump pledged to create a major economic stimulus by introducing new tax cuts, increased infrastructure spending with plans for hundreds of billions of dollars to be spent on bridges, roads, airports and more. Along with further deregulation of business rules, all these promises would be sure to spike economic activity and bring American GDP to great new levels.
This may all be for nought however, as the Federal Reserve will be sure to cap growth as soon as Trump creates any sort of momentum. As seen in the chart below, Janet Yellen made it clear to the nation that the Federal Reserve seeks to raise interest rates more aggressively next year in order to steady growth as they see fit.
Business Insider/Andy Kiersz, data from FOMC
Trump already knows most of this, and is never shy to criticize the Fed. Earlier this year Trump expressed that low interest environment was putting America in a “very false economy” by creating too much money, later stating “We are in a big, fat, ugly bubble.” He has also personally attacked Janet Yellen, declaring in September, “I think she should be ashamed of herself.”
Top analysts are already predicting the harsh effects from a Yellen clash with the Trump administration. Mark Zandi, chief economist at Moody’s Analytics opined “The Fed and markets in general will ultimately wash out any benefit,” and it will unfortunately lead him to believe that “The economy under President Trump ultimately will be diminished.”
Trump however will have a great deal of power to change this course and take back control of a renegade Federal Reserve. Already surrounded with advisers who wish to rein in power over the economy, the President-Elect will have the ability nominate the majority of the Fed’s seven-member board over the next 18 months. This includes the ability to REPLACE JANET YELLEN in February 2018 along with her colleagues in order to construct a growth orientated Federal Reserve. Time will tell on how Trump will deal with Janet Yellen, but for now it seems these opposing ideological forces will create quite a showdown next year in Washington.
by Oliver Donaldson