Trump’s Fiscal Policy Could Lift Fed’s Burden

Christmas could come early in 2017 for Janet Yellen and the Federal Reserve.

President-elect Donald Trump is coming down the chimney with lots of spending and tax cuts.

For years, the Fed has propped up the U.S. economy, while Congress and the White House fought and got little done in gridlock. Yellen, the Fed Chair, has prodded Congress to step up spending to boost the economy.

“Fiscal policy should play a role,” to stimulate growth, Yellen said in June. Translation: Help us out, Congress.
Now, Trump’s White House and a GOP-controlled Congress promise to pave the way for a big, fiscal stimulus package, taking the load off the Fed’s shoulders. Trump has promised to spend big on the nation’s infrastructure and cut taxes for everyone.

These moves will come at a time when the Fed is already starting take a back seat. In December of last year, the Fed raised its key interest rate for the first time in almost a decade. And two years ago, the Fed stopped buying U.S. bonds, which it had been doing since the financial crisis to help keep interest rates low and stimulate the economy.

The Trump era will represent a tectonic shift in the driving force behind the economy.

“We have shifted from a monetary policy world to a fiscal policy world,” says Joe Duran, CEO of United Capital, a financial advisory firm.

via CNN

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza