President Trump’s unprecedented public criticism of Federal Reserve Chair Jerome Powell has led to some media speculation that the central bank is basing policy decisions on political sensitivities rather than economic realities. Chief Investment Officer Jim Lowell discussed politics and the Fed in our recent quarterly webinar*: Investing Through Impeachments and Trade Wars.
Please enjoy the excerpt above and click here for the full webinar replay to hear more.
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Jim Lowell: In our assessment we think that the Fed is acting in accordance with the facts as they know them, and also with the crosscurrents that concern them. And part of what concerns them is the White House trying to put political pressure upon them. The Fed is an independent body. I would not read into today’s rate cut, the third cut we’ve seen this year, anything like a sign that Fed Chair Powell’s just kowtowing to President Trump’s consistent demand for more and more rate cuts. I think they’re coincident. I don’t think that this Fed or Feds prior, certainly I hope not Feds in the future aren’t driven nor dictated by the White House and by politics.
Jim Lowell: I think what has concerned this Fed and why they did move to cut rates three times ahead of any, I would say fundamental reasons to do so, was as they have pointed out the uncertainties with specific regard to tariffs and trade war issues. And you could probably add impeachment process concerns as well. But today, Chair Powell in the live conference following the announcement of the rate cut another 25 basis points, made it very clear that it’s going to take something far more significant than concern over crosscurrents for the Fed to deliver yet another rate cut. So I think the Fed’s doing exactly what they need to do. They’re returning, I think, after a couple of rate cuts away from being purely data-dependent to reminding us that they will be specifically data-dependent.
Dan Wiener: I was going to say that, it’s not that the Fed is reacting to political pressure. It’s just that they’re reacting to politics.
Jim Lowell: Yep. And I would even go a little bit further. And it’s not just domestic, it’s the global politics. We haven’t talked about Brexit on this call. It’s become effectively a non-issue so far, but it may bubble up. And the Fed clearly understands that China’s slowing in terms of its rates of growth, something that you mentioned earlier. And of course, we know that Europe as a whole is just on the cusp of a recession, unlike here in the U.S. That’s a good point, Dan.
* Webinar recorded after the market closed on October 30, 2019.
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