The Federal Reserve is meeting again. But Janet Yellen, the former Fed chairman, is not sitting in the big seat anymore. Yellen gave the Feds a reality-check during her three years as chairman. Yellen was the most powerful woman in the world, and most members of the Federal Reserve thought she did an excellent job managing economic growth. President Trump didn’t like Yellen’s fiscal style, and some people say he didn’t want a woman making financial decisions while he was in office. So Trump decided to appoint Jerome Powell as chairman. Most investors think Powell has enough experience to do the job.
Powell was Under Secretary of the Treasury in 1992. He began his membership on the Federal Reserve Board in 2012, so he understands what Yellen was trying to do even though he thought interest rates were lower than they should be. Powell took over as chairman on the morning of Feb. 5. He expected challenges, but when the largest stock market selloff since the 2016 Brexit vote became a reality, he knew he was in for a rocky start. So Powell’s first meeting as the leader of world’s most influential bank has investors nervous. They know inflation is rearing its ugly head, and the Feds will try to slow it down with another interest rate hike. But Powell has a history of voting to keep interest rates down, and that’s what Trump wants Powell to continue to do as chairman. Low-interest rates will help finance the out-of-control federal deficit. The federal deficit isn’t new, but the Republican tax cut put the deficit in steroid mode.
After years of deflationary concerns, inflation is now the big bad wolf that investors want to avoid. But avoiding inflation may not be an option. Yellen’s gradualistic attitude toward raising interest rates is over, according to some investors. Interest rate hike could be the new flavor of the year for the Federal Reserve Board. That’s not going to appease Trump’s quest to show he is an economic stimulator and financial genius. The Feds may hike interest rates at this meeting, and that means Trump’s Goldilocks economic policy might take a big hit where it hurts — in his base camp and public opinion.