The Administration is creating uncertainty, but this uncertainty is largely ignored by the markets. Is the President bluffing? Can the President remotely accomplish any of his objectives? Will it produce social unrest?
Perhaps more direct, can change occur without a crisis?
Most, including FRB Chair Powell has stated the current fiscal tract of government is unsustainable. Change must occur.
Speaking of change, by casual observation the country has been switching leadership in the White House and Congress every 4 to 8 years with regularity.
Most see no reason for this to change in the future, at least until after a crisis. So those who are frustrated with what Trump is doing today could get their turn in a few years.
Many political scientists believe one of the reasons Trump won is that Democrats simply went to far in the pursuit of certain policies and ideology (call it woke or whatever) and government spending, plus pressing for more taxes.
The President is accused of trying to strong arm and he is in the sense that he is setting certain rules and doing things that significant portions of the country do not agree.
Some would say it would have been parallel under Harris (Biden) who was/is accused of also doing things that a significant portion of the country did not agree with.
Simply said, most of us do not like to be told to do things that we do not want to do or that we feel are unfair—by authorities who are acting well, by simplistic definition acting authoritarian.
The simple fact is the government is bloated, there is massive overreach by unelected bureaucrats, and riddled with fraud. Bloomberg recently wrote
The federal deficit for 2024 was $1.8 trillion. The Government Accountability Office estimated in a report that the government made $236 billion in improper payments—three quarters of which were over payments—across 71 federal programs during the 2023 fiscal year.
Just as the electorate does not want to be told what to do, the electorate does not tolerate waste and fraud.
How will this unfold? As noted many times, most believe it will take a crisis to address fiscal issues as most elected officials are not willing to sacrifice spending in their districts, using the military base closings fiasco from twenty years ago as an example.
The simple fact of the matter is that the growth in the budget deficit must be lower than the growth in nominal GDP. If this does not occur, it is almost universally accepted that a crisis will occur.
It will be extremely hard to accomplish this goal without serious cuts. Rising taxes is not the answer. Hence the high probability of rising volatility, volatility to date that has largely been absent.
Enough of the rant, equites led by the tech rose yesterday. Bloomberg writes that META rose for a 16th consecutive session. Materials were also higher on the President’s proposal to impose a 25% tariff on all steel and aluminum imports.
Today is the commencement of a two-day Congressional Testimony by FRB Chair Powell. There is near certainty that there will be questions about tariffs. Will the Fed chair ask about rising inflationary expectations?
According to the monthly survey published by the Federal Reserve Bank of NY, expected inflation five years ahead rose to 3%, the highest since May 2024. Inflationary expectations are a major component of bond values and monetary policy.
Last night the foreign markets were mixed. London was up 0.04%, Paris down 0.03% and Frankfurt up 0.14%. China was down 0.12%, Japan up 0.04%, and Hang Seng down 1.06%.
