The president’s position seemed bolstered when the market started to slide in the fourth quarter and then surged in the first quarter after the Fed changed its rhetoric.
“Trump in a lot of ways is going to feel emboldened, because he was right,” said Christopher Whalen, head of Whalen Global Advisory. “He may not have known why he was right, but it doesn’t matter. The Fed dropped the ball and they hurt their credibility with the market.”
Divergent signals coming from FOMC speakers won’t help.
Quarles’ comments don’t seem to reflect the committee’s majority view. In the quarterly summary of economic projections released in March, just six of the 17 members who contributed to the “dot plot” of rate projections indicated that a rate hike this year was warranted.
At the same time, not a single member showed a cut through at least 2021. Even Minneapolis Fed President Neel Kashkari, one of the more dovish FOMC members, told the Wall Street Journal a few days ago that talk of a cut was premature.
If Moore’s nominee makes it through the Senate — he’s already faced criticism over this nontraditional credentials for a Fed seat — he could end up being a lone voice, though a nettlesome one.
A lack of support for cuts is not likely to please Trump, who appointed Powell, Quarles, Richard Clarida and Michelle Bowman as FOMC governors, only to have them defy him when it has come to rates. Whalen said one would have to go back to former Fed Chairman Arthur Burns, who was berated by then-President Richard Nixon, to find a more hostile relationship between a central bank chairman and the occupant of the Oval Office.
“It is very hard for any Fed chairman, and this goes back tom the beginning of the system, to operate without the support of the White House,” Whalen said. “Powell, in an institutional sense, has to make sure he’s right for the next 18 months and the markets don’t hesitate again. Because if they do, Trump is going to beat the crap out of him.”
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