Who knows, maybe it’ll be good for stocks … for a while.
At last, the likely water-carrier for President Trump’s preferred, more pliant Federal Reserve has a name: Kevin Hassett, director of the White House National Economic Council.
Like Stephen Miran—whom the White House air-dropped into the Fed just days before September’s vote, and who has spent every moment since jawboning for steep rate cuts—Hassett is the administration’s front-runner for one reason: fealty.
From “Hassett Emerges as Frontrunner in Trump Fed Chair Audition” at Bloomberg this morning:
With Hassett, Trump would have a close ally whom the president knows well and trusts installed at the independent central bank, the people said, speaking on the condition of anonymity. Hassett is seen as someone who would bring the president’s approach to interest-rate cutting to the Fed, which Trump has long wanted to control, some of the people said.
George Pollack of Signum Global Advisors assumed early on that Trump would nominate Hassett “because of his confidence that Hassett will be the candidate most likely to support the administration’s priorities.” Trump likely considers him “the one most personally aligned with and indebted to him—and therefore the most cooperative.”
It’s not a hard case to make. Everything we’ve seen from Hassett reads like a West Wing talking-points memo.
Just last week, he told Fox News that if he were Fed chair he’d “be cutting rates right now” because “the data suggests that we should.”
With rates anywhere north of zero, Hassett, Miran and the rest of the amen chorus would undoubtedly always find data suggesting cuts.
Are you shocked? Not if you’ve been around here a while:
Excerpt:
If given a second go at the presidency, [Trump] would prefer Fed management that treats him as an influential member of the rate-setting ring, the Federal Open Market Committee.
“Influential probably understates the vision,” Thad believes. “Trump wants the Fed chair to ask him his view on interest rates and then convey that view—more like request, if not demand—back to the FOMC for some semblance of discussion before rubber stamping. Imagine a president who snaps his fingers for near-zero rates and red-hot economic reports.”
“Inflationary,” I offered.
“Ya think?” …
“I’m not arguing for inflation,” I told Thad. “I don’t know anyone who would. I’m arguing that we can’t know in advance whether a change in Fed governance would be damaging. It is possible that a Fed on retainer to the White House would become an investor asset, because conditions that create glowing economic reports for a president create glowing returns for investors.”
Pyromaniac-in-Chief Blames Fire on Fed
Excerpt:
Stocks delivered a mixed showing Thursday before taking Friday off to ponder the latest Orange alert: President Trump demanded the Fed extinguish the tariff-sparked fire he started, and can’t wait to fire the fire marshal. …
Never known for introspection, our Accountability Escape Artist reached for his favorite tactic: blame someone else. The buck stops there. No walk-back of slapdash tariffs, no smart trade deals to soothe investors. Off-ramps are off the table. On the table: one fat finger aimed squarely at Fed Chair Jerome Powell, who still won’t cut rates on command like a well-trained central bank butler.
Banana Republican Seeks Central Bank
Excerpt:
Stocks fell sharply Monday under the weight of one man’s economic vision. President Trump wants the Federal Reserve to serve at the pleasure of his pleasure, another wing of the West Wing, slashing rates on command. With Fed independence foundational to US financial credibility, investors bailed. …
Trump’s trade war against almost every country on earth is going about as well as Blockbuster’s digital strategy, drawing backlash from every corner of the business world and even from his own supporters. …
He’s used to bankers bailing him out of bankruptcies. Now he expects Powell to bail out his presidency.
The only problem is that the Fed is supposed to operate independently of even garden-variety politics, let alone the politics of King Chaos. Running the world’s most important central bank on whatever erupts from the world’s most dangerous Wi-Fi connection would be a flashing neon sign that America had gone full banana republic.
Investor confidence in Treasuries and the dollar would pack its bags and catch the next flight to Zürich. The US would cede control of the global financial stage. Wall Street would become Off-Broadway, by way of Skid Row.
Now that speculation is hardening into probability around Hassett, a man who might as well have been gene-spliced from the above musings, investors are beginning to wonder what it means for their portfolios when the Fed chair is effectively a speed-dial option on the Resolute desk.
So far, not much, if the Treasury market is any guide. The 10-year yield eased a mere two basis points on word that Hassett is now the likely pick, drifting from 4.01% to 3.99%.
Maybe bond investors assume a Chairman Hassett would feel compelled to prove his independence once in the big chair, to show the world America hasn’t gone full banana republic. His term would outlast Trump’s, after all, and any career-minded economist can do that math.
As unlikely as that sounds, recall that Jerome Powell—now hailed as fiercely independent—was Trump’s own nominee before he stopped taking presidential marching orders. Trump swears he won’t repeat that mistake, but firing a fed chair isn’t easy, providing Hassett or anyone else with some cover once installed.
If Hassett does march to the rhythm of Trump’s social media feed, sending rates to the floor, the textbook effect would be inflationary. Stocks would enjoy it for a while, given their inflation-hedging qualities, but eventually investors would lose faith in the dollar and, by extension, America itself. Some might call that a risky setup.
A person unconcerned with the long-term fallout of short-term steroid injections would be someone with only limited time left in the spotlight. Say, three years. That narrows the field.
— Jason Kelly
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The signal’s starting to crackle. Paid subscribers already adjusted the antenna.
