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Powell and the Fed won’t be able to avoid talking about Trump forever

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Federal Reserve Board Federal Reserve Chairman Jerome Powell speaks during a news conference following a Federal Open Market Committee meeting in Washington on November 07, 2024 in Washington, DC. 

Kent Nishimura | Getty Images

Federal Reserve Chair Jerome Powell dodged question after question at his Thursday news conference from a press corps eager to elicit the central bank leader’s thoughts about President-elect Donald Trump.

At some point, though, Fed policymakers, economists and analysts will need to account for what likely will be an ambitious economic — not to mention political — agenda from the firebrand Republican.

Trump took a dim view of the Powell Fed during his first term in office, calling policymakers “boneheads” and once compared Powell to a golfer who couldn’t putt. Powell, who was nominated by Trump in Nov. 2017 and took office the following February, largely shrugged off the criticism then, and he again deflected Thursday.

“I’m not going to get into any of the political things here today, but thank you,” Powell said during the news conference after being asked at least half a dozen times about the Trump victory and its ramifications. Powell cut the session short around 3:12 p.m. ET, a few minutes earlier than normal following the round of politics-heavy questioning.

However, dealing with the ramifications of a Trump presidency will be almost unavoidable for the Fed leader.

Among the expected policy initiatives on the way are steep tax cuts, expansionary government spending and aggressive tariffs aimed at leveling a global playing field. Trump also has threatened mass deportations for undocumented immigrants, something that could alter the labor market landscape.

How the Trump-Powell relationship unfolds this time is unclear — Powell’s term as chair is up in February 2026 — but it is likely to add another wrinkle into a delicate balance the Fed is trying to navigate with monetary policy.

Differences in policies, politics

“They’re going to get themselves in a bind here, because the communication is going to get much more difficult, and there’s going to be a new administration coming in with its own way of how to view policy,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities.

“It’s not clear to me that that the Fed is going to have the same type of approach of what the [new] administration is doing, and that I think could set up a lot more tension,” he added.

LaVorgna has a unique perspective on the situation, having served as the chief economist for the National Economic Council under Trump. He could be headed back to Washington in 2025 for another stint in the White House.

Fed Chair Powell on whether the president has the power to fire him: 'Not permitted under the law'

Like Trump, LaVorgna has been a Fed critic, though for a seemingly opposite reason as thinks the central bank made a mistake Thursday in lowering its benchmark interest rate by a quarter percentage point. LaVorgna instead advocated the Fed hold off until it can get a clearer picture of a muddied economic landscape with uncertainty over the direction of inflation and unemployment.

Trump historically has favored lower rates, though that too could change if the Fed cuts and inflation rises.

“What if, going forward, the outlook becomes more mixed?” Lavorgna said. “To me, it was obvious they shouldn’t be cutting. And then President Trump I think [could] properly ask, ‘Why are you cutting when things [with inflation] actually don’t look as solid as they might have before?'”

Many economists think Trump’s policies could help stoke inflation at a time when signs are showing that, at least on a relative basis, the pace of price increases is easing back towards the Fed’s 2% target. Some of those economists already this week started marking up their inflation estimates and cutting their outlook for growth, despite a high level of uncertainty about what the Trump agenda will actually entail.

Should those forecasts come true and inflation perk up, the Fed will have no choice but to respond, possibly by slowing the pace of rate cuts or stopping altogether.

Uncertainty ahead

While Powell avoided Trump talk, Wall Street commentary following the Fed’s decision Thursday to lower rates by another quarter percentage point addressed the potential fallout.

“The upcoming year in Federal Reserve policy is going to be a remarkably interesting twelve months indeed,” wrote Joseph Brusuelas, chief economist at RSM.

In a forecast that is close to the Wall Street consensus as well as the fed funds futures market, Brusuelas expects the Fed to lop another full percentage point off baseline rates in 2025. But that outlook could be subject to change.

“This forecast is based on the economic status quo holding, all else being equal,” Brusuelas said. “Because we are entering an era of unorthodox economic populism, that forecast is subject to changes in both trade and immigration policy that could alter the path of employment, the unemployment rate and wage pressures that could cause an increase in the price level.”

While some economists worry that Trump’s policies could cause major fallout, others are taking a more measured approach given the incoming president’s penchant for saber rattling.

Despite implementing heavy tariffs that economists also feared would raise prices dramatically, inflation never topped 3% at any point during Trump’s term and in fact barely cracked 2% as judged by the Fed’s preferred indicator. Moreover, Biden kept Trump’s tariffs largely in place and even added some new ones on electric cars and other items.

Ultimately, the next round of tariffs could add about 0.3% to inflation, according to Nationwide Chief Economist, Kathy Bostjancic.

“We anticipate this should provide reason for the Fed to slow the rate of policy easing a bit, but not stop it,” she said. “Our call for substantive rate cuts over the next year would maintain the easing in financial market conditions that helps lower borrowing costs for consumers and businesses and continues to support the labor market and ongoing expansion.”

Still, the prospect of the Fed asserting its independence and moving policy in either direction, irrespective of Trump’s wishes, sets up a potential clash.

Trump previously has asserted that the president at least should be consulted on monetary policy. Fed officials, though, insist on independence from fiscal and political considerations, which could get tougher in the days ahead.

“The easy cuts have been made, and maybe December won’t be too contentious either,” said Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management. “Thereafter, I imagine the Fed is asking the same questions as investors – to what extent and when will the incoming Trump administration implement its campaign policy proposals?”

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Economics

Mnuchin says Trump’s top priorities will include tax cuts and tariffs

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Former Treasury Secretary Mnuchin: Tariffs need to be used to get counterparties back to the table

President-elect Donald Trump likely will return to cornerstones of his previous economic platform such as tariffs, lower taxes and sanctions when he assumes office in January, his former Treasury secretary said Thursday.

Steven Mnuchin, who held the post throughout Trump’s first term from 2017-21, told CNBC that he sees those items as critical to the Republican’s agenda.

Tax cuts are “a signature part of his program,” Mnuchin said in a “Squawk Box” interview. “I think that should be easy to pass in Congress, particularly if the Republicans control the House as well, which it looks like it will be.”

Also on the agenda would be tariffs, which Trump implemented on multiple items during his first term and promised to do again.

“I think that tariffs do need to be used to get counterparties back to the table, especially China, which is not living up to all of the agreements they made,” Mnuchin said.

Finally, he indicated that nations such as Iran and Russia can expect to see sanctions again. The Trump administration levied measures against petroleum producers in Iran in 2019 because they were owned by the Revolutionary Guard.

“The sanctions on Iran and Russia were very impactful. In the case of Iran, they’re now selling millions of barrels of oil, which needs to be stopped,” Mnuchin said.

Outside of those issues, Mnuchin, who said he likely would not take an official role in the Trump administration but would “be happy to serve from the outside,” expects Trump to take on other issues such as steep deficit spending.

“I think he’s in a position now, particularly with this overwhelming result, to take on difficult issues, and I think that’s got to be part of government spending,” he said.

Mnuchin is the founder of Liberty Strategic Capital.

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Economics

What a Republican trifecta will mean for governing

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DONALD TRUMP won a decisive victory in the presidential contest and is on track to become the first Republican in two decades to win the popular vote. His party also won the Senate and is favoured to regain full control of Congress by retaining the House of Representatives. It could take weeks before his party knows the size of its Senate majority and whether its apparent House victory is confirmed. The final margins in both chambers will set the scope of Mr Trump’s freedom to enact his second-term agenda.

In any event, Mr Trump’s leeway to appoint cabinet members, confirm judges, and influence spending and tax legislation in Congress is likely to be expansive. His victory ratified his iron grip on the Republican Party and the potency of his MAGA ideology and coalition. During his first term and in exile after his defeat in 2020, Mr Trump struggled at times to impose his will; his second term from January will begin with fewer constraints.

Yet sharing power with independent-minded senators and fractious congressmen is a fact of presidential life that even Mr Trump cannot wave away. The Senate has welcomed a slate of Trumpish Republican members in recent years, but remains a bastion of pre-Trump conservatism. The size of the Republican majority in the upper chamber will determine whether moderates like Susan Collins of Maine and Lisa Murkowski of Alaska are able to stifle Mr Trump’s worst impulses, particularly on staffing. In addition to the cabinet, senators must approve more than 1,000 senior jobs, from deputy department heads to generals and ambassadors.

Mr Trump’s campaign to reshape the federal judiciary will also require Senate endorsement. Nothing united Republicans during Mr Trump’s first term quite like his judicial nominations. He enjoyed a Republican-controlled Senate for four years, and under the leadership of Mitch McConnell the body approved 234 of his nominees, including three Supreme Court justices. It is now plausible that an outright majority of the high court will have been chosen by Mr Trump by the time his second term ends.

Mr McConnell, however, will not be leading Republicans next year. On November 13th the Senate will vote in what is currently a three-way race to replace him. John Thune, Mr McConnell’s leadership deputy, is the front-runner. John Cornyn of Texas represents Mr Thune’s biggest threat. Rick Scott of Florida is running a long-shot race from the right. Mr Thune, an establishment figure close to Mr McConnell, once had a rocky relationship with Mr Trump but has since patched it up. He looks likely to become a big figure in haggling between the White House, the House and the Senate.

Key provisions of Mr Trump’s 2017 tax-cutting law will expire in the absence of legislative action next year. Negotiations have yet to begin in earnest, but some battle lines are already being drawn. A Republican-controlled Senate is likely to fight to keep a contentious cap on tax deductions in high-tax states, but if Republicans secure a House majority because of wins in the high-tax states of California and New York, that would prompt a showdown between the two chambers. Congress will also have a say on whether to expand the child tax credit; whether to increase or cut corporate and individual rates; whether to fulfil campaign promises such as removing taxes on tips; and many other measures. On these matters the margins in both chambers will be as important as Mr Trump’s preferences.

The outcome in the House is the biggest unknown. From Alaska to Maine, there are still House races that remain too close to call. The non-partisan Cook Political Report now predicts a very narrow Republican majority in the lower chamber. A House Republican strategist reckons his party could lose one or two seats from its present five-seat majority.

If Mr Trump’s party does hold the lower chamber, House Republicans will have to appoint a speaker, a task that has repeatedly plunged its divided caucus into disarray. The incumbent, Mike Johnson, took the stage with Mr Trump in Palm Beach, just before 2:30am on Wednesday morning. In between praising the MAGA movement and his wife Melania, Mr Trump added, “I want to thank Mike Johnson, I think he’s doing a terrific job. Terrific job.” Any intraparty attempt to oust Mr Johnson will prompt a direct confrontation with Mr Trump, who will clearly have the upper hand after his thumping win.

Yet the probable Republican sweep in this election was a collective effort. After Republicans picked up an expected seat in West Virginia, networks called the Ohio Senate race—the most expensive in the country—for Bernie Moreno, who unseated Sherrod Brown, a three-term Democratic incumbent. The defeat of Jon Tester, a long-serving Democrat in deeply Republican Montana, secured their 52nd seat. And Republicans still have room to increase this new majority. Democratic incumbents remain within one point of their Republican challengers in Nevada and Pennsylvania. The Republicans could have 53 or 54 senators in the 100-seat body once all the votes are counted.

At the time of writing 412 of 435 House races have been called, with Republicans still five seats short of the 218 they need to maintain control of the chamber. At least one race seems destined for a recount, and others will be difficult to call soon.

Once the election is settled, in addition to tax legislation, other fights loom. The lame-duck Congress could pass another in a succession of short-term government-funding bills, but at some point in 2025 Congress will be responsible for a proper budget. And the Senate Armed Services Committee will now be led by a Republican who wants to increase defence spending to 5% of GDP.

Mr Trump has been endowed with plenty of political capital. How to spend it will be a subject of factional arguments, but the direction of travel is clear.

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Economics

What role might Trump give Robert F. Kennedy junior?

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AS DONALD Trump returns to power, several colourful characters surround him. One is Elon Musk. Another is Robert F. Kennedy junior, a vaccine-sceptic, conspiracy-theorist and excommunicated member of the Kennedy clan, who says he has “so many skeletons in my closet that if they could vote, I could be king of the world”.

Mr Kennedy joined the Trump campaign in August, after dropping out as an independent candidate. Since then Mr Trump has promised to let him “go wild” on health, food and medicine. In his victory speech on November 6th he singled Mr Kennedy out as the man who would help “Make America Healthy Again”. Although Mr Trump has been vague about what role he has in mind, Mr Kennedy claims he was promised “control of the public health agencies”.

This possibility has spooked those working in related fields. Mr Kennedy’s history of repeating debunked health claims, most damningly about linking childhood vaccines to autism, has been particularly damaging in a country where science has become deeply politicised. Even Mr Trump’s former surgeon-general has warned against appointing him to a senior post.

In a sign of what might lie ahead, Mr Kennedy warned on October 25th, on X, that the Food and Drug Administration’s “war on public health is about to end”, accusing it of suppressing psychedelics, stem cells, raw milk, hydroxychloroquine, sunshine and “anything else that advances human health and can’t be patented by Pharma”. On November 2nd he posted that the Trump White House would on its first day “advise all US water systems to remove fluoride from public water”.

What job, if any, might Mr Trump give him? That of secretary of health or FDA chief would require Senate confirmation, a spectacle Mr Trump may want to avoid. More likely might be an informal “health tsar” role. This could leave Mr Kennedy stuck in the White House basement with a meaningless title, or at the heart of power with the president’s ear. Much will depend on whether his boss gets sick of him.

Stay on top of American politics with The US in brief, our daily newsletter with fast analysis of the most important electoral stories, and Checks and Balance, a weekly note from our Lexington columnist that examines the state of American democracy and the issues that matter to voters.

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