by Greg Valliere, AGF Management Ltd.
Late Edition
SOME QUICK OBSERVATIONS after this morning’s blowout jobs report . . .
A RECESSION OBVIOUSLY IS NOWHERE IN SIGHT and GDP growth of around 2% — maybe even a little higher — seems likely heading into early 2020. Consumers have money in their pockets and the labor market is red-hot.
MORE FED RATE CUTS are out of the question; in fact, there’s an outside chance that the Fed might think about a rate hike by late spring.
THIS SETS UP A RESUMPTION of Donald Trump’s bitter tweets, demanding that the Fed cut rates further; he wants the funds rate close to zero percent, but the Fed is clearly fished with easing.
TRUMP HAS TWO OPTIONS: He could ratchet up the pressure on Chairman Jerome Powell, hinting that he has the authority to fire or demote him. At the least, Powell will be a convenient scapegoat.
OR TRUMP MAY CONTINUE TO STIR THE POT ON TRADE: If there’s no deal with China anytime soon, the Fed couldn’t consider a rate hike — thus an accommodative monetary policy is likely until there’s a trade agreement. So Trump, ironically, may have an incentive to drag his feet on a deal with Beijing.
THIS MORNING’S JOBS REPORT has a big political impact. It improves Trump’s chances of winning re-election — just as the Democrats appear to be on the verge of losing their high-stakes impeachment gambit.
EVERYWHERE WE GO, we hear the same mantra: Trump is a VERY difficult guy to like, but the economy is surprisingly strong. Once he’s acquitted in the Senate later this winter, Trump simply needs to repeat over and over again that the economy is surprising to the upside. Does Trump have the discipline to stay on message? If he does, a second term is within sight.
*****
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This post was first published at the AGF Perspectives Blog.
