For months, the Trump administration has been touting low unemployment numbers as evidence of a strong underlying economy. But if the economy is so strong, why can’t it take any more interest rate hikes?
White House National Economic Council Director Larry Kudlow insisted on Friday that the economy still “looks very good."
Yet Kudlow conveyed a near-panicked concern over interest rates. He called on the Federal Reserve to take the drastic step of an immediate 50 basis point reduction in its benchmark rate.
President Donald Trump’s nominee to the Fed Board of Governors, Stephen Moore, has similarly called for the central bank to start cutting rates.
A recent development that likely alarmed the White House’s economic team is the partial inversion of the yield curve following the Fed’s last meeting. When shorter-term Treasuries yield more than longer-term Treasuries (an inversion), it suggests investors are pessimistic about economic growth. An inverted yield curve often presages a recession.
If the Fed acted immediately to slash short-term rates, it could undo the yield curve inversion.
President Trump also wants the Fed to stop reducing its balance sheet, which since the 2008 financial crisis has been loaded up with trillions of dollars in Treasury and mortgage-backed securities.
Fed Chairman Jerome Powell said he wanted to “normalize” rates and shrink the central bank’s balance sheet. But it now seems clear even to Powell that monetary policy will have to continue operating in crisis mode to stave off a recession.
Last Wednesday, trends forecaster Gerald Celente issued a “Trend Alert” warning that the Fed “needs to move now” on rate cuts to counteract “weakening U.S. GDP and lower corporate earnings.” In Celente’s view, Fed inaction will lead to a “rapid economic and equity market down spiral.”
Equity market investors seem oblivious to downside risks. But they would be wise to use the recent rally in stocks as an opportunity to convert some of their paper profits into safe havens including physical precious metals.
About the Author:
Stefan Gleason is CEO of Money Metals Exchange, the company recently named "Best Overall Online Precious Metals Dealer" by Investopedia. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC and in hundreds of publications such as the Wall Street Journal, TheStreet, and Seeking Alpha.