Wednesday's Market Minute: The Trump-Powell Collision Course

President Trump is not a big fan of Jay Powell's Fed. He's made this abundantly clear in the past and did so again yesterday in his speech on the economy, saying the Fed should have been more aggressive in cutting interest rates, and that countries with lower interest rates have an unfair advantage on the U.S. It's no secret the President wants to have it all: low rates, great economy, record stocks, and low dollar. Normally, you only get a few of those at a time, but lately Trump has gotten three out of the four: record stocks, good/great-on-a-relative-basis economy, and lower rates.

Often those last two don’t go together, but the Fed chose to lower rates this year in a preventative fashion to brace against the rest of the world's weakness. While some of that slowdown indeed made its way to our shores, U.S. consumer activity remained robust and employment continued to set records – hence the many critics and even a few Fed dissenters of the “mid-cycle adjustment.” Now, Treasuries are selling off with some momentum the last two months as the economy stabilizes. It’s not that our economy is vastly improving – it’s that it’s stabilizing with the rest of the world while geopolitics are looking less dire. So rates are a little topsy-turvy, going up without real economic acceleration. If it continues, it’s going to get very confusing for both the President and the Fed, who’s promised not to hike rates without inflation.

The President clearly views the stock market as the best gauge of the economy, but it’s not difficult to imagine a stock market that drops if those rates rise without material improvement to the economy and earnings. Then the real conflict between the White House and the Fed begins.

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