He’ll Bring Them [Inflation], And They Will Love Him For It

I used to make fun of the FOMC rate hike “decision” language in the mainstream media because under the Obama administration and its economic policies overseen by the Fed’s monetary policy, there really was no decision, was there?  It was ZIRP-eternity, interrupted by a lone and token rate hike in December 2015 (the Dec. 2016 hike does not count because the transition to a new administration and policy regime was already known; in effect, the Fed has already made its first hike under Trump).

According to the traders who make up the Fed Funds futures, there is no decision tomorrow, either.  From CME Group, we have virtually no one predicting two successive rate hikes.

That may or may not be the case.  I think everything changed with the election, and the Fed you had before is not the Fed you have today.  That Fed was a promoter of inflation and a hands-on supporter of the economy and especially, asset markets.  The Fed had kept its implied ‘inflate or die’ mantra and associated monetary policy in place for 8 long years.  But now with the country flipped over like an egg onto its sunny side, a new administration has proven it means what it says (beginning with its blunt, heavy handed and in my opinion, misguided delineation of race and religion on immigration policy).

Focusing on the financial realm, what the Trump administration says is it is going to implement is fiscal (as opposed to monetary) policy in the form of tax breaks to corporations large and small, to tax payers, including and especially the wealthy, infrastructure building, including ‘the WALL’ (more symbolic than realistic in my opinion) and environmental and business deregulation far and wide.  It is a much more business-friendly environment and keeping pure politics out of it, that is a good thing, economically.

In short, what is described above is a scenario where the administration has grabbed the policy burden from the Fed and thus, the Fed is free to do as it pleases now, no longer playing politics.  The Fed knows, just as you and I know, that the indirect, and maybe even unintended aim of the Trump administration is to promote inflation.  That is because they intend to promote economic growth through policy, just has the Fed has been trying to do for the last 8 years under Obama.  By one method or the other, it is in the ‘promotion’ that inflation lives.