You knew it was coming.
With the Fed still expected to hike this week despite falling stocks, trade jitters, widening credit spreads and financial conditions that are ~80bp tighter since early October, noted cross-asset strategist Donald Trump was bound to weigh in with some last minute advice on monetary policy.
Earlier this month, we penned a pretty lengthy post documenting why Trump is “glued” to the stock market and why his predicament vis-a-vis Jerome Powell is so ironic.
On Trump’s stock market obsession, he of course views the Dow as a kind of performance benchmark for his own presidency, which is absurd for all manner of reasons but hey, nobody besides the crazy squirrels that live in his brain ever accused Trump of being a “very stable genius.”
The stock market “problem” is one of the President’s own making. He took credit for it on the way up, and now he has to find a scapegoat to avoid being blamed for it on the way down. For Trump, that scapegoat is Jerome Powell, an exceptionally ironic development for multiple reasons, not the least of which are:
- Trump repeatedly cited Janet Yellen’s policies as the proximate cause of the buoyant stock market while on the campaign trail, proving beyond a shadow of a doubt that he had some conception of how monetary policy feeds through to equity prices and yet, his pride got in the way of reappointing Yellen which means he has nobody to blame but himself for Powell’s “poor” performance as guardian of the Dow
- Trump’s own foray into late-cycle fiscal stimulus forced Jerome Powell to lean more hawkish than he otherwise might this year which means, again, that when it comes to the Fed going “loco”, the President can at least partially blame the man in the mirror
That’s the setup for this week’s Fed meeting.
Well, on Monday morning, Trump took to Twitter and delivered exactly what nobody wanted to hear – this:
It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!
Ok, so a couple of things here. First of all, the market does not need a reminder that “the world is blowing up around us” nor does anyone want to hear about how badly China is doing. It is apparently lost on Trump that his Friday tweet about China was one thing that helped undermine sentiment heading into the weekend, coming as it did on the heels of more lackluster data out of Beijing (slowest pace of retail sales growth since 2003 and the most sluggish IP print since 2008).
Beyond that, the market is worried that the Paris protests have effectively forced Emmanuel Macron to abandon fiscal discipline, a development which could well lead to tension between France and Brussels even as the Italy situation is far from resolved. Trump obviously exacerbated that situation by tweeting about it too.
Finally, the Fed wasn’t trying to score a “victory” over the rest of the world by hiking rates. The goal of Fed tightening is most assuredly not to set the world on fire and then step back and light a celebratory cigar off the flames and pull a Hannibal Smith: “I love it when a plan comes together.”
In fact, the goal is to do the opposite of that. Although everyone knows Fed tightening cycles always end in tears for somebody, somewhere, the eternal quest is to one day pull one off without the deleterious consequences.
But Trump couches everything in terms of “victory” and “defeat”, which means that from where he’s sitting, the fact that i) inflation is low despite his best efforts to drive it into the stratosphere with fiscal stimulus, ii) the dollar is strong despite his best efforts to render it worthless by ballooning the deficit, iii) the rest of the world is “blowing up around us” and iv) the Fed has managed to drag rates kicking and screaming up from ZIRP, together represent the ultimate “win”, and now it’s time for Jerome Powell to step back and piss on the smoldering ashes of the world to put them out.
Stable genius folks – stable genius.
The President just doesn't know when to let go when it comes to his attacks on the Fed. He just ran up the biggest fiscal deficit on record for a November ($205 bn) but somehow this is all on Powell.
— David Rosenberg (@EconguyRosie) December 17, 2018