In yesterday's column, "If the Economy's Changed, the Fed Has to as Well," I wrote about the increasing probability that the FOMC and its members will soon have to address the economy's structural change within the past decade. This is impacting the viability of the monetary policy decisions made, especially since Janet Yellen became Fed chair in February 2014 and the third round of quantitative easing was terminated at the end of that year.
During the last few years of his tenure as Fed chair, Ben Bernanke became increasingly vocal about the need for fiscal measures to be enacted that would enhance the effectiveness of monetary measures.
In the simplest terms, this means the Fed would manage a low-interest-rate environment that the federal government could then access by way of borrowing through the issuance of US Treasuries, with the proceeds being dedicated to direct intervention in the economy. The most logical way of deploying the capital was expected to be infrastructure remediation and development.
That, of course, did not happen and the Yellen-led Fed has not pursued the same course.
As I noted yesterday, though, it is likely the FOMC members will have to start doing so again.
This morning, former Federal Reserve Bank of Minneapolis President Narayana Kocherlakota provided a column to Bloomberg that urged the need for fiscal stimulus measures again and hit the buzz terms "infrastructure" and "financial stability."
I think it's likely this will be followed up shortly by similar commentary from currently serving Fed governors and bank presidents.
The importance of the "financial stability" reference is that it supports Fed Vice Chair Stanley Fischer's role as the chairman of the Committee on Financial Stability. His primary role in that capacity is the pursuit of an expanded mandate for the Fed that will allow it to unilaterally implement macroprudential policies that it currently can't.
Connecting the need for fiscal stimulus that complements monetary policy with the need for an expanded Fed mandate is likely going to be pursued more publicly by Fed officials, too.
Donald Trump's performance in the primaries yesterday greatly increases his chances of becoming the Republican Party's nominee and that sets the stage for Trump vs. Clinton for the election.
Both Trump and Clinton have expressed a greater willingness to pursue fiscal measures to support the domestic economy than the current Republican-controlled Congress has allowed President Obama to pursue.
That means the prospects for such to be successfully pursued by the next executive administration increased greatly yesterday.
As Trump has continued to advance in the primaries, the performance of the stocks of the largest infrastructure companies has followed.
In the past three months, Jacobs Engineering Group (JEC), Fluor (FLR) and Chicago Bridge & Iron (CBI), which I discussed in the February column, "Implications of a Trump Presidency, Part 2: Trump vs. Military Industrial Complex," have increased 18%, 27% and 9% respectively.
As great as this performance is, I expect it to continue unless either Trump or Clinton has their nominations challenged.
Trump still has the potential for a challenge at the Republican convention and Clinton still has the potential for an indictment.
However, even if they both end up not receiving their party's nominations, the next administration is going to have to deal with the pressure coming from the Fed and the pragmatic reality of an underperforming economy that will need to be addressed.
Jacobs and Fluor, in particular, are priced not far above their post-Lehman era crisis lows as a federal infrastructure program has not been able to get traction since then.
Beyond the potential for Clinton or Trump to get their party's nominations, there is the possibility of a near-term rebound in economic activity that could hamper the political viability of a new push for a federal infrastructure program.
I do not consider that to be likely, though, for all of the reasons I've discussed in numerous previous columns.
It is also possible that a federal infrastructure program could be derailed by another event external to the U.S., as occurred when Russia invaded Crimea, which I discussed in the column, "When Infrastructure Goes Private."
The totality of everything that has occurred politically and economically over the past few years, though, is indicating that the need for direct fiscal intervention in the domestic economy by the federal government is gaining acceptance.