Look at These Charts and Tell Me the Fed isn’t Part of the Deep State
Yesterday’s issue of Money & Crisis sure created quite the ruckus!
If you missed it, the basic premise was as follows…
I am increasingly concerned that the Fed is part of the “Deep State” coup against President Trump.
Yesterday, I outlined the key differences between Fed policy during the Obama presidency vs. those it used during President Trump’s first-term.
By quick way of review, those differences are shown in the chart below…
Looking at the above, it’s extremely difficult to argue that the Fed isn’t playing political games. The differences are truly astonishing!
However, in order for this analysis to pass muster we need to consider the Fed’s actions in the context of the economy.
Granted, the Obama presidency started during the worst financial crisis in 80 years… so we can expect the Fed would be easing monetary policy during at least part of his presidency.
Moreover, the Trump presidency began during a period of relative economic stability where President Trump then ignited it to higher growth. So, we can expect that the Fed would be tightening monetary policy during at least part of his Presidency.
However, the fact the Fed kept interest rates at ZERO for seven of President Obama’s eight years as president, and then RAISED rates SEVEN times during President Trump’s first three years is beyond the pale.
This is especially true when you look at the Fed’s policy decisions in the context of the United States.
This chart shows the official data from the Fed’s own GDP NOW measure, which shows how the U.S. economy is doing in real-time.
The Fed raised rates only twice during the Obama presidency. Those rate hikes took place during the dark blue box.
The Fed then raised rates SEVEN times during the first three years of the Trump presidency… those rate hikes took place during the green box.
Notice anything strange?
The economy was indeed stronger under President Trump than it was under President Obama… but was that strength great enough to warrant FIVE additional rate hikes while also draining $600 billion in liquidity from the system? (via the Fed’s Quantitative Tightening (QT) program).
The situation becomes even more absurd when you consider that the U.S. economy didn’t fully ignite under President Trump until we were over a full year into his first-term. This makes sense as it takes time for economic policies to take root.
And yet, during President Trump’s first 18-months of presidency — when the economy was only marginally stronger than it was under President Obama — the Fed raised rates FIVE times.
Indeed, looking at the below chart, once President Trump took office, it’s almost as if the Fed hiked rates every time economic growth began to break out to the upside.
How do you explain this other than politics? And remember, during those first 18-months of President Trump’s first term, the Fed wasn’t just hiking rates — it was also draining $50 billion in liquidity from the financial system every single month!
Put simply, it is 100% crystal clear the Fed is FAR more aggressive under President Trump than it was under President Obama… to the point that I believe the Fed is using monetary policy to intentionally sabotage the Trump administration’s economic goals.
This is the #1 issue for the markets right now. Stocks can overcome a weak economy and even a trade war — provided the Fed is ready to act — but if the Fed isn’t interested in supporting either due to its political views, then we better watch out.
With the markets near an all-time high, and the Fed actively working to hurt the economy for political purposes, now is not a good time to put capital to work in the markets.
In particular, I believe that on July 31st, the Fed will shock the financial system, and the economy in a BIG way to hurt the President.
I’ll explain how in Monday’s issue of Money & Crisis.