Why D.C.’s policy pronouncements are the key to economic growth

Good morning folks, I hope everyone had a nice weekend. I have spent a good chunk of it pulling the remaining hairs out of my head. Whether you agree or disagree with his decisions, the reality is that I can think of no period in my lifetime where the actions of the President have had a more direct and immediate impact on the economy. This means that now, more than ever, those of you responsible for positioning your financial products and services are more dependent on the whims of Washington than ever before, and this is not a good thing.

In 2016, the NCUA began implementing a new framework for evaluating interest rate risk. However, how can one evaluate interest rate risk caused by the comments and behavior of the President of the United States? On Friday, he responded to news that China would be raising tariffs by announcing harsher retaliatory tariffs on our most important trading partner. He suggested that the chairman of the Federal Reserve Board, Jerome Powell, was an enemy of the United States. He then ordered companies to cease dealings with China. This is not normal behavior, and it is having a direct impact on how you go about doing your business.

Right now, views on the economy can be split into two camps. There are those who believe that the economy is fundamentally strong, and will remain so at least into 2021; and those who believe that the economy is weakening as the effects of the tax cuts wear off and a long running economic expansion comes to an end. If you are of the former camp, then interest rates should stabilize and it makes no sense for the fed to cut rates. Conversely, if you are of the latter camp, then of course the fed should be cutting rates. It should probably be doing so even more aggressively than it has indicated it is inclined to. No matter what camp you belong to, the uncertainty brought about by the President’s comments are in no one’s interests. Interest rates are the nerve ending of the economy, and the natural reaction to potential pain is to recoil.


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