Why is Trump Fighting the Federal Reserve?

jerome powell

Fed Chairman Jerome Powell had a frank warning for U.S. policymakers yesterday . . .

It was one of his most detailed appeals for fiscal support. Powell said that providing too little support for the American economy would be far more dangerous than offering too much help.

Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.”

The Fed chair said that policymakers must keep doing everything they can to manage downside risks to the economic outlook.

Jerome Powell said that involved containing the virus through “using masks and social distancing measures.”

Jerome Powell also they must prevent a slowdown in the pace of economic improvement, which “could trigger typical recessionary dynamics as weakness feeds on weakness.”

Unfortunately, at least so far, the pleas from Jerome Powell seem to be falling on deaf ears.

Both the Democrats and Republicans in Congress are being stubborn, as is the President.

Meanwhile, the unemployment report last Friday made for grim reading.

It showed that 2.4 million people had been out of work for 27 weeks or more. That is the threshold for the definition of long-term joblessness.

And an even bigger surge is on the way. Nearly five million people are approaching long-term joblessness over the next two months.

Gregory Daco of Oxford Economics summed it up:  “It’s simple: Less fiscal stimulus means more economic pain.”    

The Big News

Pfizer Gives the Stiff Arm to Trump

Pfizer CEO Albert Bourla said in a tweet on Tuesday: “Pfizer has never discussed @US_FDA’s #Covid19 vaccine guidelines with the White House and will never do so as it could undermine the agency’s independence.” He added that the FDA’s “independence is today more important than ever as public trust in #Covid19 vaccine development has been eroded by the politicization of the process.”

Moderna Forced to Slow Its Vaccine Trial

Private contractors hired by Moderna to recruit volunteers for its coronavirus vaccine trial failed to enroll enough Black, Latino and Native American participants. Covid-19 infects blacks in the U.S. at nearly three times the rate of white Americans. They are twice as likely to die from the virus. So Moderna voluntarily slowed enrollment in its trial in an effort to get more minority participants.           

The World’s Billionaires Get Richer

The world’s billionaires have seen their fortunes soar during the  pandemic. Their collective wealth hit $10.2 trillion this summer. This exceeded the previous high set in 2017. Billionaires’ fortunes are far above their 2020 low, which was recorded in April. That’s when their combined wealth fell to a mere $8 trillion in the depths of the global market selloff.        

Science Wins Out

The White House approved science-backed Covid-19 vaccine guidelines after all. The FDA released its requirements for drug makers working on coronavirus vaccines. This came after White House officials had blocked the move for two weeks. The requirements mean that vaccines will not be available until after the November election.               

Boeing Slashes Expectations for Aviation Rebound

The aviation industry has been hammered by the pandemic.. And Boeing is still gloomy. It slashed its forecast for global passenger jet demand over the next decade by 11%. This represents a loss to the industry of an estimated $200 billion in potential revenue. The expects airlines to shrink fleets and accelerate the retirement of older aircraft.

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The Coronavirus Numbers

Here are the numbers from Wednesday at 8 a.m. ET from Johns Hopkins University:

  • 35,858,601 Infected Worldwide
  • 1,050,771 Deaths
  • 7,501,869 Infected in the U.S.
  • 210,918 Deaths in the U.S.

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What’s Next

Stocks fell yesterday after President Trump nixed hopes of an economic stimulus deal. The S&P 500 declined 1.4% on the day having earlier traded higher.

Stocks “took the elevator down” swiftly yesterday. But they are climbing the stairs back up this morning.

The Presidential election is taking on more significance the closer it gets. Markets just seem to want it out of the way to move on.

Many stock market participants think the President will win re-election. But the bond market is already penciling a Democratic sweep.

The U.S. yield curve steepened sharply this week. Investors believe a Democratic sweep (Presidency and Congress) in the upcoming election will bring a more aggressive fiscal policy.

On Tuesday, the yield on five-year Treasury notes was at one point 1.27 percentage points below that of 30-year government bonds. That is the widest gap since 2016 (except for a brief intraday move in June).

This is the result of investors ditching more longer-term Treasurys than shorter-term Treasurys.

I’m not too worried about the steepening of the yield curve.

That’s because the Fed is in control. If it thinks longer-term yields are getting too high, it will come in and reverse the trend though massive buying.

So just keep your investing ‘ship’ on a steady course. Techs and IPOs are still working. 

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Yours in Health & Wealth,

Tony Daltorio

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