Day 35: Higher Interest Rates Threaten the Future of Trump’s Economy
This week, we saw predictions Trumponomics will indeed bring a spike of growth, but it will be a spike quickly destroyed by crippling interest rates. Could this be what’s causing the US Federal Chair Janet Yellen to suggest raising rates too fast would be “unwise”? As seats start opening up at the FOMC, Trump is in position to add key new members and start swaying the vote in his administration’s favor.
Threat Level “Yuuuge” – Spiking Interest Rates Could Spoil Trump’s Plans
- Trumponomics’ double-edged sword: stocks are rising, but so are interest rates.
- Investors are betting on a Trump-fueled inflation surge on top of massive tax cuts.
- Trump sees US companies investing in efficient productivity to increase supply.
Trump’s economic vision seems at odds with both investors and the Fed in regards to efficient production, according to Fortune. The Fed is predicting price surges in the market, whereas Trump sees production surplus exploding with rising demand. This “supply side revolution” Trump promises has the Fed shaking its collective head in disagreement.
The ultimate key to Trump’s plan being a success or failure is interest rates. Some see the structure of his plan, which entails lifting exports while slashing imports to shrink the deficit, will ultimately make high interest rates inevitable. According to Peter Schiff, we’ve already surpassed the Fed’s 2% target for inflation, as the CPI numbers revealed last week mark them at 2.5%. That means we’ve already moved past the Fed’s target rate.
Some Economic Strategists Say Yellen is Already Old News
- Chief Strategist Mark Grant to CNBC: “The Fed of today is not going to be the Fed of tomorrow.”
- Grant adds the “academic, economist Fed” will soon end as Trump onboards up to three new business-focused members this year.
- With Trump’s plans for a bigger military and infrastructure budget, some agree that he’ll fight to keep interest rates down.
With Fed Governor Tarullo leaving the Fed, others are expected to follow suit, meaning Trump will have even more chances to influence monetary policy in the future. Author Danielle DiMartino Booth talked with CNBC about potential vacancies and what Trump may do moving forward. She said in her mind Trump needs a dovish Fed to accomplish his economic goals.
The only way Trump’s agenda can be accomplished is if the monetary climate changes so the current Fed members take a more conservative stance on policy or if he edges business-minded members into the fold.
One Contender is Top Bid for Open Fed Board Seat
- Richard Davis, C.E.O. of Bancorp is top contender as of today according to Bloomberg.
- With three of the seven Fed board seats coming available in the next two years, Davis is the first look at future picks.
- Davis praised Trump’s desire to reduce regulations and increase consumer demand.
Richard Davis announced his plans to retire later this year. Davis originally stated he would stay at Bancorp as executive chairman. Bancorp navigated the financial crisis under Davis’ helm rather well, avoiding many of the pitfalls like subprime mortgage lending that tanked other lenders at the time. His past compliments of Trump show a man who’s cautiously optimistic about the promises of the new administration.
In other news, several individuals have been tapped for vice chairman of supervision, who is in charge of regulating some of the largest Wall Street banking institutions. Lately, the Republicans in the House have been complaining about bank regulation, urging Yellen to halt on Fed moves until the Senate can confirm the final pick for the supervision role. Whoever wins the seat will have enormous power over how high-volume Wall Street banking happens, and whoever ends up in the role will reveal much of Trump’s intentions.
Get Peter Schiff’s latest gold market analysis – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!