One of the primary reasons why the Federal Reserve has become so powerful in the last two decades is because the Legislative and the Executive Branches of government have passed the buck of fiscal responsibility over to the hands of the central banks. In fact, following the taxpayer funded bailout known TARP, the long-time Senator from New York publicly told the central bank it was their time to ‘get to work’.
But sadly the lassitude of Congress only emboldened the Fed to enact monetary policies that have not only destroyed the economy and market systems, but have also made it impossible for the economy to ever function correctly without some form of continuous intervention.
President Trump however sees things a bit differently, and in just his first week in office has sought to remedy the government’s apathy towards fiscal policy by starting the ball rolling for tax cuts, regulation cuts, a weaker dollar, and a tearing up of nearly all old trade agreements.
And thus we come front and center to the showdown between the Fed’s Janet Yellen, and the new President following a decade of complete power and autonomy over all policies dealing with the dollar. And going into this week’s FOMC meeting, it is the Fed that holds the key to whether Donald Trump’s programs will be in synch with what the central bank intends for the economy, or whether they respond with interest rate hike salvos that could make The Donald’s vision for America that much harder.
Despite his campaign rhetoric, that at times has been contradictory in relation to what Trump needs the Fed to do to weaken the dollar while at the same time cutting back on its ‘bubble formation’, the central bank is in a bind that is partially of their making, and partially the fault of Congress. And in this catch-22 is the unenviable task for the Fed to not admit to the fact that their monetary policies have utterly failed in bringing back normalcy to the markets, to also try to justify their desires to bring normalcy to interest rates, when anything they do except more of the same will bring down the house of cards in a New York minute.