Why The White House Wants The Fed Spigot Open

March 29, 5:00 pm EST

We’ve talked about the prospects of a repeat of 1995, when the Fed flip-flopped — cutting rates, following an overly aggressive tightening cycle. Stocks soared.

With that in mind, in addition to the about-face the Fed has done over the past three months, verbally managing down expectations on rates, we’ve since heard from (effectively) the White House, calling for “an immediate 50 basis points cut.”

Trump has selected Stephen Moore as an nominee for the Fed.  He publicly called for the 1/2 point cut this week.  And today, Larry Kudlow, the White House Chief Economic Advisor, said the same.

The Fed wants ammunition if a U.S. slowdown occurs (as damage control).  The White House wants a cut to “protect” the current growth — i.e. to pre-empt a slowdown (prevent the damage).

This comes following a weaker final Q4 GDP number, which dropped full year 2018 growth just below 3% (2.9%).  And the reality is, Q1 won’t be a big number (thanks in part to the sentiment scars from the Q4 stock market decline). It looks like 1.5% at the moment.  That would be the slowest growth since Q1 2016.

Are the calls for a cut from the White House coming because they don’t think a China deal will happen?  Possibly.  More likely, the Trump administration wants the spigot open, to fuel economic momentum into the 2020 election.  Why not press the accelerator, given the continued tame inflation environment and softness in Europe and China?

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