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Trump Rethinking Relationship with the Fed

President Donald Trump’s relationship with the Federal Reserve is, to put it mildly, evolving. Candidate Trump loathed the central bank, a luxury the man who currently holds the Oval Office no longer can afford.

As a result, Trump’s rhetoric has abated considerably.

Where he once charged that Fed Chair Janet Yellen should be ashamed of herself, he has scarcely mentioned her name since he’s been in office. Gone are the days of railing against asset bubbles and the loose monetary policy that often fuels them.

That’s come as Trump has realized he may need the same low interest rates he accused the Fed of using for political purposes to prop up the economy under former President Barack Obama.

In short, things have changed a lot in 100 days.

“It’s another one of his flip-flops,” said economist Michael Pento, who said he voted for Trump but has been disappointed so far. “Now that he’s the president, the stock market’s no longer a bubble. … Now he loves low interest rates and loves a weaker dollar.”

The trouble for Trump is that the climate is shifting inside the the Fed. Officials on the policy-making Federal Open Market Committee are of a mind to increase rates gradually in the coming years, after going nearly a decade without making a move.

In a perfect world, the rate hikes would accompany a growing economy. However, multiple signs recently that growth may not achieve the breakout speed that the president has pledged are raising questions about whether the Fed could torpedo the Trump economy.

“All of a sudden, they’ve found their monetary manhood. They’re raising rates aggressively, and for what reason?” said Pento, head of Pento Portfolio Strategies. “For some reason, there’s been a watershed change in monetary policy, and it happened in December 2016. What is the trenchant difference between what preceded 2016 and what has ensued? There is no rationale other than they don’t like Republicans.”

via CNBC [1]

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Alfonso Esparza

Alfonso Esparza [6]

Senior Currency Analyst at Market Pulse [7]
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
Alfonso Esparza

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