Not So Fast With Those Fed Hikes: Brainard Warns Costs Of Trump Stimulus Could Be "Significant"

Tyler Durden's picture

Delivering her first speech on monetary policy since September, closely watched Fed governor Lael Brainard, considered to be one of Janet Yellen's most trusted peers, said monetary policy "could be affected for some time by uncertainty surrounding fiscal policy and its effects on the economy", specifically the magnitude, timing and composition of these changes.

And while the Fed's recent shift to incorporate the "Trump stimulus" in its forecasts has been duly noted, and according to some has made the Fed more hawkish as the central bank expects substantial stimulus even with employment near capacity (granted, ignoring the 95 million Americans out of the labor force), Brainard on Tuesday took a modest step back and acknowledged that while expansionary fiscal policy could prompt the central bank to undertake a faster pace of interest rate increases and begin shrinking its balance sheet sooner than expected, the details of the policy shifts under Donald Trump are still quite uncertain and could come at "significant costs."

In other words, the Fed may bypass the near-term impact of the Trump stimulus, and focus on the longer-term, more adverse and deflationary implications by what the president-elect will unveil. Translation: no hikes even as inflation rises "transitorily." This may be the Fed's first admission that it could stay pat, and not hike even if Trump manages to push through his proposed $1 trillion stimulus.

Still, she conceded that fiscal stimulus that targets households and businesses that are likely to spend and invest rather than save will raise aggregate demand. That can speed recovery when the economy far from full employment and price stability, but at this point, it will "more likely result in inflationary pressures," she said in remarks prepared for the Brookings Institution in Washington. That is because data shows full employment is "within reach" and there are "signs of gradual progress toward our inflation target." 

At this point the discussion shifted to another topic near and dear to the Fed's heart: what kind of fiscal stimulus will Trump unveil.

"Fiscal expansions that affect only aggregate demand and are enacted when the economy is near full employment and 2 percent inflation are relatively less likely to sustainably boost economic activity and relatively more likely to be accompanied by increases in interest rates."

At the same time, she warned, because these policies do not affect the economy's long-term growth potential "but do result in persistent fiscal deficits, they can lead to substantial increases in the debt-to-GDP ratio," reducing "the space for fiscal policy to stabilize the economy in the event of future adverse shocks." 

Yes, we also found it amusing that the Fed continues to warn about America's rising debt load.

There is good news. If changes in fiscal policy raise productivity growth or induce greater labor force participation with higher levels of skill and education in the workforce could boost investment and consumption and the long-run neutral rate.

If "fiscal policy changes lead to a more rapid elimination of slack, policy adjustment would, all else being equal, likely be more rapid than otherwise," she said, "with the conditions the FOMC has set for a cessation of reinvestments of principal payments on existing securities holdings being met sooner than they otherwise would have been.

Another important dimension of fiscal policy shifts worth considering is the weak state of domestic demand in the rest of the world. Risks remain tiled to the downside, as interest rates in Japan and the euro
zone are still near zero, China faces capital outflow pressures and high levels of corporate debt, and the European banking sector remains fragile.

"If more expansionary fiscal policy here at home raises expectations of a growing divergence between the United States and other economies, upward pressure on the exchange rate will likely result, as we have seen recently with the renewed increase in the dollar." 

The result could be a reduction in the effect on real economic activity at home and a drag on inflation as the dollar strengthens.

Another observation: the Fed is increasingly worried about the impact of the strong dollar on the US economy. A 20% rise in the dollar over 2014 and 2015 coincided with falling real exports and import prices, with net exports subtracting more than a half percentage point from GDP growth in both 2014 and 2015, Brainard cited.

"Against this uncertain backdrop, monetary policy will continue to be guided by actual and expected progress toward our goals, the level of the neutral rate, and the balance of risks," she concluded. 

"A gradual approach will remain appropriate as long as inflationary pressures remain muted, the economy remains short of our objectives, the neutral rate remains low, and downside risks from abroad remain, although this will depend on the fiscal trajectory, as it evolves, and its uncertain effects on the economy and financial markets."

In short: the Fed and Trump's fiscal policies remain tied at the hip, with the Fed increasingly uncertain what the future may bring, which is to be expected, since even Trump overnight flip-flopped on what until recently, was expected to be one of the mainstays of his tax reform, namely the Border-Tax Adjustment. It is unclear how Congress will react to this snubbing by Trump, and whether it jeopardizes any or all of Trump's proposed stimulus plans.

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pickatheweek's picture

Stick save this shit show why don't ya.  Typical BS fedspeak right on time.  Eat me raw cunt.

Cognitive Dissonance's picture

The Fed Hokey Pokey.

You put your rate increase in,
You put your rate increase out,
You put your rate increase in
And you shake it all about.
You do the Fed Hokey Pokey
And you turn yourself around,
That's what it's all about.

nope-1004's picture

The sign in the tavern says:  "Free beer tomorrow"

The sign at the Fed says: "A rate hike is coming"

 

Truth is, their own member banks would IMPLODE if rates rose.  They lie 100% of the time.

GGuy's picture

Lael Brainard = JUST ANOTHER LYING 'NAZI J00

evoila's picture

this is exactly why we need to get rid of the fed and just float the currency against gold. it's a game of he said, she said, 365 days a year.

GGuy's picture

We shall see who owns Trump IF he appoints another Joo....or he is shot before then.

JRobby's picture

Brainard

That just makes me chuckle. Fargo thing I guess....

Sofa King's picture

Bitch just pissed that she's no longer next in line.

two hoots's picture

The Fed has found a scapegoat in Trump.  "trump did it, long live the Fed!".  

ejmoosa's picture

Instead of a dozen dumb asses setting the rate, let's let millions of Americans set the rates based on whether they seek to borrow or seek to save.

two hoots's picture

as Bullard says today:   Americans should tap their home equity.

MFL5591's picture

Where was Brainard when the Fed spent 10 trillion that was all printed growth?

evoila's picture

At MIT, writing research papers along with Jonathan Gruber (https://www.youtube.com/watch?v=Adrdmmh7bMo

auricle's picture

Print and give TBTF banks the money, it was the right thing to do. Print and give to the people, that will have consequences. End the FED. 

ebworthen's picture

Exactly.  There was plenty of money to bail out the banks/corporations/insurers.

JRobby's picture

Nov 8, 2016, Trump elected

Nov 9, 2016, oligarchs to all bankster minions: "dump bonds and bid up yields to crush this fucker's Presidency, for starters. 

"But we thought there was a market!?!?!??"

(Laugh Track Deafening!!!!)

 

SoDamnMad's picture

Honey, where the fuck were you when hundreds of thousands of Americans were losing their jobs, homes and family security so that the banker friends of yours who you socialize with could get their huge bonuses for doing exactly jack shit.  

This is why so many stepped up to the plate and voted for the other choice then Mz Hillary.  

You know maybe some deviant(s) will whack you all at the Fed before your friends whack Trump.

Hal n back's picture

I know these folks are smart because they have told us so.

However not much has gone right with this accomodative monetary policy for a lot of reasons some good some not so good.

Trum wants to spend more tax less. IMO that means a rate hile is counter productive. That means by exiting the qe Fed balance sheet we get tighter money more costly money.

Its simple: why does the Fed not at lease spin it correctly.

 

Space Ghost's picture

Speak English you stupid fuck. I bet you don't have 2 people irl that enjoy being around you based off the language you use

Space Ghost's picture

Speak English you stupid fuck. I bet you don't have 2 people irl that enjoy being around you based off the language you use

spqrusa's picture

The Fed doesn't want to loan Trump money - it had plenty of money for overthrowing America with Obozo.

Time to End-the-Fed and print an IOU (100 year note) for whatever is owed to the borrowers.

DontFollowMyAdviceImaDummy's picture

make that IOU a quintillion-year-note, due only at term date.

fbazzrea's picture

negative yielding quintillion-year note. they pay us to hold it.

detached.amusement's picture

Odious debt from the creation of counterrfeit currency need not be repaid to fraudulent banks

spqrusa's picture

They could also take the option of early termination via guillotine or fast-acting cancer virus.

iAmerican3's picture

Lael Brainard is a friend and supporter of the pedophile lesbian Hillary Clinton, so necessarily a satanic brainless POS.

Get rid of her.

Jayda1850's picture

More spending and more printing. Who could have guessed? Roll out that 100yr bond.

dude duderson's picture

Lail Braindead: The Mr Pibb of Fed speakers, announces that the Fed ain't gon do a gaddamn thing bc things may or may not be what we thought they'd be.  Go fuck yourself, America.

MrTouchdown's picture

She's worried about the debt? Didn't she hear the good news from Krugman? Debt doesn't matter.

Bam_Man's picture

How true.

And we haven't even started minting those "Trillion Dollar Coins" yet.

Debt doesn't matter until you run out of "Trillion Dollar Coins".

JRobby's picture

Euthanize Krugman. He's terminal.

yttirum's picture

The feds don't even get it. Trump makes them obsolete. They aint drivin' this carriage no more. Doesn't matter what majik they intend to use, actual substance, life, people, making shit, creates obsolescence of their funny numbers game. The animation is here and fictions are so 2016.

GGuy's picture

John Q. Pubic thinks the Gummint owns the FED, not a bunch of racist 'NAZI Jew trash who want to institute J00 World Order.

flaminratzazz's picture

slap this cunt and tell her to get back into the kitchen and stay there.

women should not be in politics in any form, including the right to vote.

real men need to stand up and quit letting these alpha females run our lives.

if we dont, there will be hell to pay,

look what they did to california

BigWillyStyle87's picture

Not really sure why anyone downvoted you, the evidence pretty clearly supports what you just said.

MrBoompi's picture

For once can the owners of the Fed make a public statement instead of paying their lackeys to demean themselves on their behalf?  Let's see the Rothschilds take the stand and swear to tell the truth.  

nah's picture

20 Trillion dollars if rates go up

.

hand yourself over some more money

.

Who says the globalists dont need to run the world just so we can eat at the office

inosent's picture

(((whatever))).

#endfakemoney

OfAllElaboratePlans's picture

I'll gladly pay you next Wednesday for a hamburger today

GGuy's picture

Q: Why no NON-J00 FED Chair in 3 Decades?

 

A: Because Volcker (THE LAST NON-J00 SAID THE FED WAS A RACKET) and then Reagan was shot.....

 

We all know what happened to JFK when he said the same thing.

OfAllElaboratePlans's picture

Volcker went to work for Rothschild as soon as he left the FED

Dialectic Investor's picture

95 million OUT of the labor force?? That's nuts!!!

Unless that is a dishonest stat considering it includes kids, stay at home parents, and retirees. Come on guys.

Stan522's picture

Audit the FUCKING Fed!

NoWayJose's picture

More twisted forked tongue FedSpeak - able to be twisted in any way the listener wants.

The problem, of course, is that while no one likes a strong dollar - Trump and the Fed continue to push policies that strengthen the dollar!

Does anyone really think that Yellen is going to be a "good 'ole boy" and cooperate with Trump?

adr's picture

The boomers will need to liquidate their holdings to pay for medical bills. 

Gen X is living paycheck to paycheck. 

Millenials have nothing and hope to inherit upstairs when mom and dad kick the bucket. Too bad snowflake won't be able to afford the property tax. 

There is no growth and there is no economy outside the false narrative. 

In ten years there will not be enough of the productive economy to keep anything afloat. Obama was the death spasm of America. 

GGuy's picture

Ten Years? HAHAHAHA

 

It's all going to plan, and much quicker than that!

 

ORIGINAL POST 12-2015

1) Steal the acquired wealth of all White Run countires. Destroy the middle class, destroy all white culture, demonize whites, Christians, heterosexuals

2) Flood all white countries with muslims, wetbax and all the scum Israel would never take.

3) Instigate a nuclear war with Russia, the last FREE WHITE RUN COUNTRY...because they won't commit suicide by INVADER!

4) ALL White countires Nuke each other, white problem solved, GREATER ISRAEL AND THE JOO WORLD ORDER CAN NOW FLOURISH!

Any questions, GOYIM SHEEPLETARDS?

Wahooo's picture

What do you mean "will"?  People in assisted living and nursing care already have liquidated their assets - would be inheritance gifts - to pay for medical care. All for what? To die from a slow shrivel and mental atrophy.

Fuck that.

I'll Take The Bullet.

GGuy's picture

Remember,

 

"IF IT'S GOOD FOR THE 'NAZI J00, IT'S BAD FOR YOU*"

 

*YOU= GOYS & schvartzes

Barry McBear's picture

Brainard has as much a chance of having her term renewed as Yellen does.  Zero.