Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Political Week Presurres US Stock Market - 25th Mar 17
London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - 25th Mar 17
Will Washington Risk WW3 to Block an Emerging EU-Russia Superstate - 25th Mar 17
Unaccountable Military Industrial Complex Is Destroying America and the Rest Of The World Too - 25th Mar 17
Silver Mining Stock Fundamentals - 24th Mar 17
A Walk Down the Dark Road of Bad Government - 24th Mar 17
Is Stock Market Flash Crash Postponed Until Monday? - 24th Mar 17
Stock Market Bubble and Gold - 24th Mar 17
Maps Of Past Empires That Can Tell Us About The Future - 24th Mar 17
SNP Independent Scotland's Destiny With Economic Catastrophe, the English Subsidy - IndyRef2 - 24th Mar 17
Stock Market VIX Cycles Set To Explode March/April 2017 – Part II - 23rd Mar 17
Is Now a Good Time to Invest in the US Housing Market? - 23rd Mar 17
The Stock Market Is a Present-Day Version of Pavlov’s Dog - 23rd Mar 17
US Budget - There’s Almost Nothing Left To Cut - 23rd Mar 17
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

How Trump Versus Fed Adds to Uncertainty

Interest-Rates / US Interest Rates Mar 03, 2017 - 03:48 AM GMT

By: Dan_Steinbock

Interest-Rates To implement his $1 trillion dollar infrastructure plan, President Trump needs low rates, even though the Fed’s rate hikes will strengthen dollar. That means new uncertainty worldwide.

In his Crippled America (2015), Trump argued that “our airports, bridges, water tunnels, power grids, rail systems—our nation's entire infrastructure is crumbling, and we aren't doing anything about it."


The problem is that as Trump would like to begin his $1 trillion dollar infrastructure plan, the Fed is about to accelerate rate hikes. Trump needs low rates and weak dollar. Yellen is raising rates and strengthening dollar. Something has got to give in.

Trump’s $1 trillion infrastructure plan

During his campaign, President Trump argued that US economic growth and job creation rests on the combination of income tax cuts, deregulation, trade protectionism and spending for defense and infrastructure. His proposal to boost defense-related spending by $54 billion suggests that he is about to move ahead.

Trump’s newly-confirmed secretary of commerce, billionaire Wilbur Ross, and the head of National Industrial Policy Commission, Peter Navarro, believe that increased economic growth would be stimulated by income tax cuts and additional military and infrastructure spending, which would offset increased budget deficits.

While there is a longstanding bipartisan agreement on the need for the modernization of the US infrastructure, there has been little consensus about how to go about it. During his campaign, Trump proposed to spend $800 to $1 trillion to repair and improve the U.S. infrastructure. To raise capital, he hopes to create an infrastructure fund supported by government bonds that investors and citizens could purchase, similar to Build America Bonds.

Nevertheless, realistic analysis of the Trump plan suggests it would cause the national debt to increase by almost $10 trillion over a decade; on top of the current $20 trillion which already accounts for 107 percent of the US GDP. That would translate to a debt tsunami.

Fed’s impending rate hikes

When Trump’s infrastructure plan was developed, interest rates were still close to zero. But as the Fed is about to hike up the rates, the plan will be a lot more expensive to execute.

In December 2015, the US Federal Reserve raised the interest rate by 25 basis points. It was the first step away from the zero-bound interest rate policy since 2008. In the current year, the Fed seeks to accelerate tightening with three comparable rate increases, even as Trump is about to unleash his $1 trillion debt tornado.

"If we raise interest rates and if the dollar starts getting too strong, we're going to have some major problems,” Trump warned in June 2016. That shift is a reality now. He can no longer rely on the Fed to ease and thus to monetize the debt issuance. In turn, efforts at aggressive infrastructure modernization could force Yellen to slow down rate increases, keep them lower, or halt such hikes, and so on.

At the same time, any perceived stalemate between the White House and the Fed could lead foreign holders of US treasuries to unload their holdings. That’s what happened last year when the US presidential elections got ugly and foreign holders of US treasury securities – China, Saudi Arabia, Russia, and Turkey – reduced their holdings by $250 billion.

Increased uncertainty about the contradictory objectives of the Fed and the White House could result in a new wave of dumping.

More volatility

What’s at stake is also the value of the US dollar. Fed’s rate hikes tend to strengthen the dollar, while Trump’s debt tsunami would weaken it.

US dollar’s recent fluctuations reflect uncertainty about the administration’s contradictory objectives, even as the US dollar has replaced the volatility index as the new “fear index.”

The timing is not favorable as the Trump administration is about to accuse its key trade partners – China, Germany, Japan and Mexico – for “unfair trade” and “currency manipulation.”

The new economic uncertainty and market volatility is only about to begin.

Dr. Dan Steinbock is an internationally recognised expert of the nascent multipolar world. He is the CEO of Difference Group and has served as Research Director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see www.differencegroup.net   

© 2017 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife