The Fed & Politics---It's Bad And Will Only Get Worse

It is difficult to identify another time when the Federal Open Market Committees unanimously decided to maintain policy stability, citing "a challenging scenario where our dual mandates are in tension", and yet, within a few days, not one but two Fed Governors attempted to shift the narrative and outlook by suggesting they might vote for a rate cut as early as the next meeting in July. The fact that both Fed Governors Waller and Bowman were nominated by President Trump makes their comments even more controversial and suspect. Examining the phone records of the White House economic team and the Fed Governors (and CNBC) could reveal any potential political involvement.

Whether or not there was direct political involvement, the Federal Reserve will be implementing policy in an exceptionally intense political and fiscal environment. Congress is close to passing legislation that will result in $2 trillion deficits per year for the next ten years. Meanwhile, Trump's tariff policy has yet to deliver the many trade deals promised, creating the potential for a higher inflation environment and increased uncertainty for businesses and consumers.

Whether justified or not, political demands for a more easier monetary policy are set to rise in the upcoming weeks and months. The Fed is already being splintered by politics and investors should be prepared even more of a political divide. If the Fed gives in, expect bond yields to surge and the dollar to decline sharply.