Tags: Trump Administration | fed | europe | investors | monetary policy

Increased Tension Between Fed, Trump Unnerves Investors

Increased Tension Between Fed, Trump Unnerves Investors


By    |   Monday, 20 February 2017 10:24 AM

The Presidents Day holiday means that nothing of notice is scheduled to happen in the United States unless someone can be found for the job of national security adviser.

Meanwhile, nothing is scheduled to happen in Sweden. 

In fact, to paraphrase the Swedish pop group ABBA (one of the most successful popular music groups from 1974 to 1982), nothing special has happened in Sweden for some time. In fact, it’s a bit of a bore unless one counts the Riksbank’s policy decision last week: Sweden’s central bank diecided to do nothing.

This week in the U.S., we do have the prospects of the minutes of the Federal Reserve coming out Wednesday. This is something that may weigh on investors collective minds.

However, last week’s Fed Chair Janet Yellen’s testimony to Congress was supposed to reflect the view of the FOMC as a whole. The minutes of the FOMC should be similar in terms of tone to the remarks made by Yellen, although, of course, there is always the possibility of some interesting details.

Cleveland Fed President Loretta Mester spoke this morning in Singapore and was similar in tone to Yellen’s Congressional testimony, indicating a willingness to raise rates without any specific indication as to timing.

Interestingly, she also said: “It is no secret that there are several legislative proposals to change the way the Fed pursues its congressionally mandated monetary policy goals. Some proposals seek to restrict the Fed’s ability to pursue these goals in a way that is insulated from short-run political influence. This restriction on monetary policy’s independence would be a significant loss for the nation because … when a central bank formulates monetary policy free from short-run political interference and is held accountable for its decisions, better economic outcomes result.”

We must read her remarks in context of what House Financial Services Committee Vice Chairman Patrick McHenry wrote in a letter to Yellen.

McHenry wrote to Yellen: “The Federal Reserve must cease all attempts to negotiate binding standards burdening American business until President Trump has had an opportunity to nominate and appoint officials that prioritize America’s best interests,”

This phrasing makes it clear the possibilities of increasing tensions between the Fed and the Trump administration are substantially on their way up. Such increased tension will impact investors’ thinking about how the Fed will be allowed to perform in the future.

In simple words, we could say, “Change is coming.”

Over in the UK, the House of Lords is expected to vote today on the government’s bill to invoke article 50 and leave he European Union (EU).

It’s extremely unlikely that the Lords would vote against the exit itself, but the Upper House is perhaps more likely to vote amendments to the bill than was the House of Commons, which passed the bill without alteration.

This may have some bearing for financial markets because any amendments may have a bearing on uncertainty about negotiations, for instance increasing the role of Parliament, or if there are sufficient disruptive amendments, this may delay the implementation of article 50 as the government’s target is to start the exit process before “All Fools' Day,” on April 1.

In Germany, we just got the producer price index (PPI) for January that was up more than expected printing up 0.7 percent against 0.3 percent expectations on the month and by 2.4 percent against 2.0 percent expectations on the year, which was the highest annual rate change since March 2012.

This is the measure that matters most in assessing corporate pricing power because companies generally sell to other companies rather than to the consumer. It also has some bearing as a possible lead indicator for consumer price inflation (CPI), which is where the ECB’s policy is focused.

The higher than expected PPI reflects higher oil input costs, but it also reflects some of the German labor cost pressures that are evident in the German economy. All that confirms that continuous economic divergence among the member states of the Euro area, which is of course not a healthy situation.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

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The Presidents Day holiday means that nothing of notice is scheduled to happen in the United States unless someone can be found for the job of national security adviser.
fed, europe, investors, monetary policy
Monday, 20 February 2017 10:24 AM
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