It’s Trump’s Fed now.
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After a halting and ineffective stretch of conflict with the don’t-call-it-a-central-bank, which saw two prospective Fed nominees go down in preemptive flames, Trump has regained his footing and laid claim to America’s monetary policy.
He’s got two new nominees on a stronger footing. And he’s succeeded in getting the sitting Fed to imminently lower interest rates… a total flip flop from where they were before he spoke up about the need for easier money.
What’s more, one of his new nominees is Judy Shelton, a scholar who supports even bigger rate cuts and wants to guide the dollar… if not the whole world… toward a more stable financial system, perhaps even pegged to the value of gold.
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That strikes many analysts as a fringe view. But in fact gold only came fully unglued from the dollar after a punishing string of multiple global financial crises. Prior to that, the previous metal was more or less the foundation of currency pricing since ancient times.
Even some cryptocurrency boosters… who for now don’t have a friend in Trump or in Fed chair Powell… are looking to gold and other metals as the backing for so-called “stablecoin.”
But for now the big deal is rates, and there, Trump has already made as much of a world changing impact as he has on China. Just as Trump alone moved the entire US consensus against China… even if many still shudder at tariffs… he alone spoke up against Powell’s planned multiple rate hikes.
Only Trump said Powell didn’t get the economic moment and needed to do the exact opposite of what he and the conventional wisdom proposed.
Now, instead of their customary freakout over Trump getting his way, establishment analysts are moving toward a cautiously optimistic wait and see approach. Never ones to throw Trump a party, some now say the rate cuts prove out that the economy can’t get any stronger.
The fact is nobody knows how to properly measure our economic strength. Things are in flux, from the valuation of tech to the valuation of the Chinese economy, which is hagridden with bogus data boosted or shrouded by Beijing and its media organs.
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The stock market has avoided a crash or a slide into bear territory for so long that few know if a new floor has been established and for how long. And nobody knows whether conditions will be fundamentally changed over the next five years… whether by outside shocks to the system or simply a run of the mill slowdown and reset to the cycle.
What’s clear is that the Fed’s desire to crank up rates again was motivated largely by its desire to restore its rate tweaks as a tool of monetary policy that could ameliorate downturns. With rates too low, they could only push them negative, something Americans would not tolerate… unlike Europeans.
Trump’s wager is that the US is going to remain the best economic and financial house in a bad neighborhood, meaning reliably okay performance that needs care and attention to keep it going.
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If he’s right, his presidency will keep right on going too.