Fed Raises Rate At First Chance Under Trump
Were they protecting Obama and helping Hillary by keeping rates unchanged for the past year? Has the economy really heated up that much since October? Could be, and No are the answers. In any event, the Fed hiked the Fed Funds target 25 basis points today from a range of .25%-.5% to a range of .5%-.75%, as expected by market participants.
As always the Fed released an accompanying statement that was typically dovish in tone and keeps the Fed squarely in the “data dependent” mode. However, they are signaling expectation of another 3 rate hikes in 2017; rather aggressive given recent behavior. It is about time though. The Fed has been way late in beginning the process to normalize interest rates, and I am in the camp that suggests the Fed Funds rate should be brought to 3% as quickly as possible, and the Fed should begin to reduce their balance sheet soon after.
So, I’m on board. However, the timing will keep nagging at me. The Fed never escapes the suspicion of political favoritism, though timing may fuel that a bit more this time around. Unless the last 7 years of sub-par GDP and job growth can be considered a recession, the U.S. economy is due for a couple of negative quarterly GDP prints. The Fed raising rates won’t accelerate that, only complicate it.
The Fed's actions over the past 8 years combined with unprecedented fiscal mismanagement have engendered significant systemic risks for the U.S. economy and the globe. There will not be a painless exit. The Trump growth story may not be enough to stop the cyclical recessionary process, though it may blunt it.