Who is more at fault for the slowdown in the U.S? Is it President Trump for his policies or is it the Fed for its rate hike policies?
This question is being debated now and, while I am not dismissive of it, I do have to point out that the president's major accomplishment to date is to cut corporate taxes and that has unleashed a solid amount of growth, so solid that it has allowed him to fight back against the Chinese who have systematically been stealing our jobs and our intellectual property and even our military secrets.
It's a bit of a quid pro quo with the president. He's made lots of companies and execs richer so now they have to pay the price of both sovereignty and hegemony. I think you have to recognize that there has been a major power shift with China becoming a powerful force globally and China is, in the end, a Communist dictatorship that has crushed dissent and routinely imprisons those who have spoken out against the government. They are not a friend of our nation yet our imports have financed their egregious methods and it is time that someone stood up to them.
The problem is that the stand-up is going to slow the economy by nature so why the heck pile on with rate hikes?
I talk to an endless number of business people who have businesses both here and abroad and I always bring up tariffs with them. The tariffs do matter. But they are so much more concerned with rate hikes, particularly the threat of rate hikes galore next year, that it is absurd if you are in my position to say that the tariffs are at the heart of the less than robust growth we are now having.
Of all the myriad execs I speak to only one, the CEO of United Technologies (UTX) , Greg Hayes, has said the consequences of full employment -- that he can't find the workers he needs -- makes it important than the Fed hikes rates. On the other hand almost every exec I speak to believes that the Chinese have not played fair and think it is imperative that we defend ourselves from their rapacious ways.
There's a lot of talk that the banks would be hurt by no further rate hikes. The bankers I deal with no longer feel that way because they aren't able to charge enough for loans to make up for how much they have to pay depositors to get money. Plus the bankers see an inverted yield curve developing because the rate hikes for next year, if executed, will surely put the short end of the market higher than the long end. They are worried about lending now if we are going to go into a recession next year because the Fed is willing to overshoot to stop wage inflation, something the Fed chair said himself.
Now it is true that the collapse of oil could cause consumers to have more money to spend and more money chasing fewer goods will cause inflation, but the producers of products that rely on oil and gas, which has now also collapsed, should pass along some of the reductions they have had. Of course if they don't that's pure inflation, too.
Now, again, I am willing to concede that the Fed should raise once more and then wait -- a prudent policy. But, believe me, if the execs I deal with the thought that the president and his trade policies were at the heart of the slowdown that I was predicting in October when Jerome Powell said the economy was on fire, I would shout it from the rooftops. They aren't. They are with president. I only know what they tell me: it's almost all on the Fed and the Fed can make or break the economy from here. Right now it looks like they'll break it. What a terrible mistake that would be.