Business

That is why presidents should not mess with Fed




Wall Street largely expects Fed to raise interest rates on Wednesday. But Trump told Reuters last week that another price increase would be "foolish". He told Fox News: "Hopefully, the Fed will not raise interest rates anymore."

"It would shock the markets if they did not go and that would show political capitulation," said David Kotok, co-founder and chief investment officer at Cumberland Associates. "Trumps attacks on the central bank are not helpful to anyone."

Greg Valliere, the world's global strategy at Horizon Investments, claims that tame inflation and slipping of growth estimates would give the Fed room a jump on Wednesday ̵[ads1]1; apart from the Trump factor.

"We do not think President Jay Powell pays much attention to the president, but bond marketers and other places would shout that a stand-pat Fed has been politicized," Valliere said in a recent note.

Valliere described "Two Great Fed Ironies." First of all, the central bank must raise prices precisely because of Trump's press. And secondly, Trump was "the most tough Fed leader in our lives – but he kicked her."

In fact, Trump complained to Fox News that former President Barack Obama had years of "zero" interest rates. Of course, former Fed chief Janet Yellen tried to recover the economy back to health.

In any case, Trump is very likely to be disappointed on Wednesday by Fed.

  Almost half of US finance directors fear a decline in 2019
Despite the recent market chaos, investors are priced at 77% chance of quarterly interest rates, according to CME FedWatch Tool.
However, Wall Street expects Fed to trim its 2019 forecast for interest rate hikes (the infamous puncture) due to new signs of slowing global growth and evidence that higher borrowing costs push the housing market and car sales.

PIMCOs Joachim Fels and Andrew Balls wrote in a report last week that a "break" in the first half of 2019 "looks more likely." Bank of America Merrill Lynch believes the Fed's dot plotter will signal two tours in 2019 and only one by 2020. Even Goldman Sachs, who demanded four interest rate hikes in 2019, has shrunk its view of Fed policy.

Yet, Trumps attack on the Fed makes some shift in politics difficult for Powell, who was nominated by the president.

While Trump is concerned about short-term fluctuations in the economy and the stock market – especially before the 2020 election – Fed has broader concerns.

The central bank, an institution that relying on being over the policy, is keen to wake up against the risk of unhealthy inflation. The 1970s showed how deprecating inflation rates could be.

And a larger image, the Fed must protect the central bank's reputation to be independent. Without it, investors could lose faith in the stability of the system.

"History records abuse of central banks affected by political forces that result in inflation and ultimately hyperinflation. Venezuela, Zimbabwe, Weimar Republic," said Kotok. "Importance of central banks independence can not be overestimated."

2. Bank of England: With Britain deep in Brexit's unrest, investors will closely follow the Bank of England's meeting on Thursday. It kept the rate unchanged at 0.75% when it last met in September.

"Since the previous meeting of the committee, there had been indications, most prominent in the financial markets, greater uncertainty about future developments in the withdrawal process," said that.

The British government is still not closer to a Brexit agreement, and BOE warned that leaving the EU would mean problems for its economy.

3. US GDP: The US Economy Directorate will release its third estimate for the quarter GDP Friday.

The second estimate, released in late November, was a rate of 3.5% annual growth, as reflected in the October estimate. This is a slower than 4.2% interest rate in the second quarter due to a weakening in business investment. The economy boomed in the first half, partly because of the dramatic tax cuts that were adopted in late 2017.
4. Earnings: A smacking of tech, retail and consumer companies will report revenue this week, including FedEx (FDX), Olive Garden owns Darden (DRI), General Mills (GIS), Walgreens Boots Alliance (WBA) and Oracle (ORCL).
One to see is Nike (NKE). Despite the fact that the stock has increased by 16% for the year, the value has fallen sharply since the last earnings report. Some concerns include Trump's tariffs on the bottom line and reduce focus. Thursday's earnings will also be its first full version since it debuted its controversial Colin Kaepernick ad.

5. Coming This Week:

Monday – Oracle (ORCL) Earnings
Tuesday – FedEx (FDX) and Darden (DRI) ) earnings
Wednesday – General Mills (GIS) earnings; Deciding Interest
Thursday – Nike (NKE), Walgreens Boots Alliance (WBA) and Blackberry (BB) Earnings; Bank of England meeting
Friday – Carmax (KMX) earnings; GDP third estimate.



Source link

Back to top button