This article was published by The McAlvany Intelligence Advisor on Friday, January 4, 2019:
If you stop Trump’s economy, you stop Trump. This is more and more clearly the policy of the Federal Reserve under its temporary head, Jerome Powell. Temporary because the Fed, now more than 100 years old, is the bastard child of the international banking establishment and its authority is granted only temporarily to its chairman.
The Fed’s job is to slow the Trump economy to the point where it becomes a liability for his reelection campaign in 2020 instead of an asset. How do we know this? In Powell’s Q and A following the announcement that the central bank was raising interest rates by another 25 basis points on December 19, he was asked a question about the “runoff” of bonds that it has been engaging in for months now, sucking capital out of the financial markets. Asked Heather Long of the Washington Post: “I’m wondering if the Fed has had any discussion of altering the course of the balance sheet normalization and if you could give us any thoughts on what might lead the FOMC to alter that balance sheet normalization in 2019?”
We thought carefully about this, on how to normalize policy, and came to the view that we would effectively have the balance sheet runoff [remain] on automatic pilot….
I think the runoff of the balance sheet has been smooth and has served its purpose.
If, as we have surmised repeatedly, the Fed’s purpose is to slow and then eventually stop the Trump economic juggernaut just in time for the 2020 presidential election, then it is working. On two previous occasions this writer has opined here that the Fed is to blame not only for the selloff on Wall Street but, more importantly, for the slowing of the economy.
On December 9 this writer asked: “Who is the real culprit behind this volatility in stocks? The well-informed have been pointing to the actions of the Federal Reserve as the prime driver, focusing on its determination to slow the economy by raising interest rates.” This writer even quoted the insider banking firm Goldman Sachs when it told its clients that “The FOMC [the Fed’ Federal Open Market Committee] will likely be reluctant to stop [raising interest rates] until it is confident that the unemployment rate is no longer on a downward trajectory…” In other words the Fed was and remains determined to keep on raising interest rates until the economy is so weak that unemployment starts to increase!
On December 27, this writer told the rest of the story: raising interest rates isn’t the only tool in their toolbox. We quoted Ivan Martchev, an investment strategist with institutional money manager Navellier and Associates, who nailed it:
I think the present volatility of the stock market is not due to the hiking of the fed funds rate alone, but also to the more disruptive overall quantitative tightening[emphasis added], which demonstrates itself via the rising Fed balance sheet runoff rate, which went from $20 billion in January to the present $50 billion/month rate.
Letting bonds mature (and not reinvesting the proceeds) … sucks excess reserves out of the financial system. Sucking electronic cash out of the financial system may be the simplest possible explanation as to why the stock market is doing what it is doing.
The Fed’s strategy is working. Goldman Sachs has just reduced its growth outlook for the first half of 2019 from 2.4 percent to 2 percent and the insider bank expects growth to slow further in the second half of the year to 1.8 percent.
Morgan Stanley, another insider bank, expects the economy, thanks to the Fed’s interest rate hikes and its continuing “auto pilot” liquidation of its bond portfolio, to slow to 1.7 percent this year, with quarterly growth declining to just 1 percent in the July to September quarter.
By the time the spring of 2020 rolls around, as the Fed continues its “runoff” of bonds which Powell has promised will remain on “auto-pilot,” the Trump economy should be in a full-blown recession. That would end Trump’s hopes for a second term as voters would blame him (and not the Fed) for it.
One may safely ignore headlines that bond investors have now decided that the Fed won’t be raising interest rates this year after all, as the Wall Street Journal just noted:
Fed-funds futures, which investors use to bet on the direction of Fed policy, on Wednesday showed a 91% probability that the central bank’s policy makers will finish the year  with interest rates at or below their current levels.
That is a reversal from early November, when futures prices indicated a 90% probability that rates would end 2019 higher than they are now.
He may safely ignore protestations by the likes of the head of the Dallas Fed, Robert Kaplan, who says that Powell should back off for a while on raising interest rates until the board gets a “clearer picture” [CNBC’s phrase] on where the economy is headed.
Powell and his gaggle of sycophants already know where the economy is headed. He is just following orders from his handlers. After all, since the international banking establishment is an essential part of the Deep State, the father and mother of the Fed back in 1913, why wouldn’t they tell Powell to send the U.S. economy into a recession just in time for the 2020 elections?
It bears repeating: the Deep State has had it in for Mr. Trump since his election, and the Fed, under its control, won’t stop its “runoff” of bonds until Trump’s economy stops. This will virtually guarantee that his reelection efforts in 2020 will fail.
The McAlvany Intelligence Advisor: Who’s to Blame for the Decline on Wall Street? (December 8, 2018)
The McAlvany Intelligence Advisor: Who’s to Blame for the Decline on Wall Street?, Part II (December 27, 2018)