When The Fed Raises Rates, Janet Yellen May Leave a Bad Legacy

Janet Yellen Federal Reserve Chairwoman
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In each of the past two years, the Federal Reserve has predicted multiple interest-rate rises, only to be thrown off-course by the bombardment of current events.  Namely, the Trump Administration and its circus-like acrobatic policies.

On March 15th the central bank raised its benchmark Federal Funds rate for the third time since the financial crisis, to a range of 0.75-1%. This was, if anything, ahead of its forecast, which it reaffirmed, that rates would rise three times in 2017. “Lift-off” is at last an apt metaphor for monetary policy. But as Janet Yellen, the Fed’s chairwoman, picks up speed in terms of policy, she must navigate a cloudy political outlook. The next year will define her legacy.

Ms Yellen took office in February 2014 after dithering by the Obama administration over a choice between her and Larry Summers, a former treasury secretary. Left-wingers preferred Ms Yellen, in part because she seemed more likely to give jobs priority over stable prices. Indeed, Republicans in Congress worried that she would be too soft on inflation. The Economist called her the “first acknowledged dove” to lead the central bank.

Although the US stock market is smoking, and the unemployment rate is low, there remains an underlying feeling of dread among some analysts who say America has yet to pay the piper for its gains. Will Donald Trump bear the cost of disastrous Fed policy?*

On the 2016 campaign trail of tears, many observers were mud-wrestling with the question: Was Donald Trump the real deal, or was he – as most would say, the snake-oil salesman who he appears to be – just another silver-tongued orator with a gift for bamboozling voters?

Just one week in office, the results are in: the “maverick” from Manhattan is pure 100 percent anti-establishment; it could take decades to undo the damage he’s doing. He’s already signed off on a raft of executive orders undoing a chunk of Obama’s last-minute legacy, including withdrawing the US from TPP and ordering bricks for his Mexican Wall.

The Washington elite, comfortable for so long in their lobbyist-bought fortress, are holding their breath as Trump continues draining the proverbial swamp. However, the real estate developer probably understands better than anyone that when you drain a fetid body of water you are bound to wake up some monsters – the American people.

Greenspan’s comment nicely summed up the challenge now facing Trump, a man who doesn’t seem to handle rejection real well. Thus, it is reasonable to suggest we are heading for a major clash between his administration and the Central Bank down the road.

In response to the question to whether it would make a difference now for Trump to attempt to replace Yellen, replacing her with somebody who shares his Trumpian philosophy, it has been said and it’s worth repeating: “She has been in DC for several years printing even before she got her present job. It is certainly too late in the sense we are all going to pay a terrible price for the money printing whether she is there or not.”

The question now is whether it will be Donald Trump who is chosen to ‘pay the piper’. Although it is impossible to predict if the US economy will crash on Trump’s watch, we do know with absolute certainty that nothing would please the establishment elite more if that were to be the case.

*Presently, the US national debt stands at $19.9 trillion dollars. Here’s why you should invest in the stock market today.

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About Brandon Foster 19 Articles
Brandon Foster writes about stock and options trading for Camtrading.com. He also writes product reviews for a prominent online publisher. Previously he managed an equity fund and daytraded full-time in Seattle. He currently lives in Portland, Oregon, and spends his free time thinking of new ventures to start.