Donald Trump plays with white. The Fed will respond after the fact. Since winning the election, the Republican’s economic agenda has fallen into a cone of careful silence. Wall Street takes note.
“There is no need to rush the rate cut,” he said. Jerome Powelll, the Fed boss, in Dallas. It sounded like a warning. Immediately, Chicago futures began to cast doubt on the planned quarter-point reduction on December 18. Is the Fed beginning to distance itself from the economic policy that Donald Trump will promote starting in January? Formally, no. Powell was very clear. The Fed does not anticipate the president-elect’s decisions. “We don’t guess, we don’t speculate, we don’t assume” what policies are going to be applied, he said last week.
And in Dallas he stressed that the central bank will wait to know with certainty the definitions of the new Administration. That is to say, Trump plays with white. Faith will respond a posteriori. If possible, it will adjust the monetary policy bias later, but not before. As policy today is restrictive, and the central bank wants to make it neutral, repeating a quarter-point cut is likely, in line with the current point map. In principle, the promises made in the heat of the campaign do not matter.
Let it be stated that the political transition is a model of civility. The White House is in order. Trump visited President Biden and thus facilitated the joint photograph that he denied four years ago. Since he won the election, his economic agenda has fallen into a cone of careful silence. With control of both chambers of Congress, tax cuts are an accessible goal, but no one shook the issue. Trump has not yet revealed who will be his Treasury Secretary. The tsar of tariffs and protection, Robert Lighthizerwho was running for himself in the campaign, would return to serve as US trade representative. It’s quite a sign. You will not move up the chain of command.
The financiers are left in the race. Although Jamie Dimon, The CEO of JPMorgan clarified that he is not interested. AND John Paulson he got off. Could it be Scott Bessent, founder of the Key Square Group, who knew how to say that what was said about tariffs should not be taken literally? Or Howard Lutnik, Cantor Fitzgerald’s helmsman, a manager more convinced of change, according to Elon Musk? Or will there be someone covered with better scrolls and less participation in the campaign? It will be known soon. Trump is not unaware that his ideology is more of a ramp for interest rates to take off than a reason to continue lowering them. That’s why he’s silent. Those who speak for him are long rates and the dollar, both on a sharp rise. Unlike Powell, financial markets prefer to position themselves first and then corroborate what Trump is up to.
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Federal Reserve
Inflation: with Trump on the threshold, sensitivity changed
Consumer inflation in October was a carbon copy of September. The reaction, no. With Trump on the threshold, sensitivity changed. Core inflation, in fact, was repeated for the third consecutive month: +0.3%. An annualized cruising speed of 3.6%. Is convergence to the 2% goal stuck? That is the new concern. Is that why Powell said what he said? Probably not. The Fed is data dependent, but it has a strategic vision of inflation and not merely a punctual one. In the first quarter, for example, prices took an unexpected jump that only subsided in May. Powell was not upset. He stated that you had to be patient, and time proved him right. When he released the rate cut, he also pointed out that a process of successive cuts was beginning, and not an isolated movement. It is known that the dynamics of disinflation of services is slow (slow, but sure). She is to blame for these traffic jams that time unclogs and the Fed relativizes. What persists are the high accommodation cost readings. But it is not present inflation but past inflation. “I don’t see new pressures”said Susan Collins of the Boston Fed. For this reason, lowering rates is not in question.
Inflation remains on a firm course at 2%Collins said. Now, if Trump wants to innovate and push an agenda of massive tariff increases, slow the growth of labor supply and lower taxes without paying attention to the fiscal deficit, that is another story entirely. And it would justify another monetary policy program in 2025. If the Fed knew that Trump was going there, then it could lower the blind on the rate cut right now and buy time. That is what the markets suspect and Powell denies.
The Trump rally took its first break
Wall Street takes note. Of inflation, of Powell’s sayings and of Trump’s appointments, especially the handful that remember the unbearable lightness of his being. The announcements by Gaetz, Gabbard, Hegseth and Robert Kennedy Jr. raised dust even among Republicans themselves. There is no doubt about his fidelity, but about his competence. Is Trump testing the limit of his senators’ loyalty? Or will he want to get rid of one of his candidates (forcing the Senate to reject his nomination) and create an account receivable in the process? Wall Street clearly acknowledged Powell’s words. If what the head of the Fed wanted was to moderate enthusiasm, he achieved it with the least effort.
The Trump rally took its first break. The feeling became neutral. AND It was the worst week since September for the S&P500 (-2.1%) and the Nasdaq (-3.1%). Despite the fact that the economy confirmed its solidity. Retail sales excelled in September (revised upwards) and October. The Empire Fed report, which measures the pulse of the industry in the state of New York, came out with its highest value in three years. The formula for success is to let the economy run. Don’t break what works well. And leave Powell alone to continue lowering rates. It is up to Trump not to attack him – as he is now doing with Biden – and to avoid shooting himself in the feet.
Source: Ambito
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