No rate increase from Feds, pleasing Trump

To the delight of many, including President Trump, the report from the Federal Reserve’s Federal Open Markets Committee meeting that ended Wednesday, said in its summary report that there were no plans to raise interest rates, a move that had been previously derided by Trump, as well as his denouement of Fed Chair Jerome Powell.

The news stoked an uptick, during Powell’s remarks, of the Dow, which shot up 200 points but, later dropped to 142, but, nevertheless, the White House is building on the news for the reelection campaign of the president.

As anyone who has taken a basic course in macroeconomics knows, the mandate of the Federal Reserve is to keep inflation beneath 2 percent, and to lower unemployment, a mandate that it has adhered to over decades.

Trump’s trashing of Powell as a threat to a healthy economy gave the injection of politics into the role of America’s central bank, and some have said there was a stare down between the two men - yet, the U.S. economy is on solid, if not spectacular ground, much like during the Obama years, and increasing employment, on a steady basis, just as Powell, (like former chair Janet Yellen), kept an even hand on the tiller, using data, not politics, to keep it there; and, ensuring, perhaps to the horror of the president, steady employment under his watch.

Rates are now between 2.25 percent and 2.5 percent, and are expected to stay that way, and with unemployment remaining low, despite the February Jobs Report that many economists and bankers see as typical for the month, those that predicted that there might be one in 2019 and maybe one more in 2020, are now looking pessimistic - and there is joy on Wall Street, as well as Main Street.

Yahoo Finance reported that “In keeping interest rates steady at the current target range of 2.25% to 2.5%, the Fed said that the labor market "remains strong" but said economic growth has "slowed from its solid rate in the fourth quarter."

“The Fed statement said indicators have pointed to "slower growth" of household spending and business fixed investment,” hinting at a slowdown in consumer spending and a corresponding slowdown in the GDP.

There is still a difference of opinion in predictions for the economy with the White House proclaiming 3.2 percent growth, and others seeing far less.

The New York Times reported that “The Fed now expects 2.1 percent growth this year, down from the 2.3 percent it forecast in December — and more than a percentage point less than the 3.2 percent growth the White House predicts. The outlook for 2020 is even more bleak, with the Fed now projecting growth of just 1.9 percent.”

If the devil is in the details, there is much to be seen, and “by signaling it will not raise rates without a clear change in conditions, the Fed is effectively giving Mr. Trump what he wants from monetary policy, but with a twist. The president has publicly pushed Mr. Powell to stop raising rates. But if the Fed is correct and growth falls well below 3 percent this year, without a single rate increase, it will be difficult for Mr. Trump to pin the blame on Mr. Powell,” they added.

Concern is still on the horizon for trade wars that Trump does not want to ease, and also the continued rejection by the British Parliament on Brexit, and the weakened, but slowly strengthening, Chinese economy; global concerns that darken an otherwise rosy outlook.

Looking at the FOMC report, it was clear that there would be no rate hikes “for 2019 — [and] came from an overwhelming majority of participants: 11 out of 17.”

The members opine were carefully laid on the now infamous dot plots, and they show that “for 2020, the median dot sits only 25 basis points above that level, telegraphing that only one rate hike could be in the cards through the end of next year,” said Yahoo Finance.

What is a dot plot, some ask - and Barron’s gave a brief description that can help that mythical person, the general reader: “For most of its history, the Fed did not tell the public where interest rates would go. Traders could make their own projections based on their readings of the economic data and their guesses about officials’ preferences, but the opinions of the people who actually set short-term interest rates were effectively a secret.

That changed seven years ago, thanks in large part to the efforts of Janet Yellen, then the Fed’s vice chair. As she explained at the time, the goal was twofold: Increased “transparency” would bolster the central bank from political attack, while the introduction of “forward guidance” would give monetary policy makers another tool to boost the economy.

Beginning in January 2012, the central bank has included regular summaries of what officials believe is the “appropriate” level and path of the Fed’s policy interest rate over the next several years. For the sake of equal representation of the Federal Open Market Committee’s members (as many as seven governors on the board in D.C., plus the 12 regional bank presidents), these summaries look like stacks of dots rather than lines or fan charts, hence the term “dot plot.”

This is not to say that there is infallibility, and Market Watch noted that “The dot plot was useful when the path of interest rates was always assumed to be higher. It doesn’t work as well when the direction of the next move is uncertain,” noted Kevin Logan, chief U.S. economist at HSBC.

Powell said last week he’s asked the FOMC’s communications subcommittee to look at the issue and its future issue.

Notably these “projections are a significant downward revision from the December FOMC meeting where policymakers raised by 25 basis points and said the economy could absorb "some further gradual increases." For comparison, the median dots in the December dot plot signaled two rate hikes for 2019 and a third in 2020.”

The partial government shutdown had its effect on the February Jobs Report, as well as the aforementioned political pressures, all that contributed to the fall for that month, despite those bankers, and observers, that saw it as a “pause” after the Christmas holidays and retail season.

Another source of concern was the unwinding of the balance sheet of Treasury securities, and mortgage-backed securities indefinitely, by up to $50 billion per month, that were part of the Central bank’s plan of  “quantitative easing” during the Recession to keep interest rates low and inject money into the economy, are now beginning an unwinding - a long held desire by Republican lawmakers.

“In May, the Fed plans on slowing the reduction of its holdings of Treasury securities. Currently the Fed is allowing redemptions on $30 billion of Treasuries a month, which it will slow to $15 billion.

The Fed says by the end of September, they will conclude the reduction of its securities holdings. A statement added that at that point in time, the Fed will have balance sheets that will "likely still be somewhat above the level of reserves necessary to efficiently and effectively implement monetary policy."

“With more clarity on the size of the balance sheet, the next step for the Fed will be deciding its ultimate composition. Some Fed officials have advocated for a more "neutral" balance sheet skewed toward shorter-term Treasurys in place of the Fed's current longer-term Treasury and agency debt and mortgage-backed securities holdings.”

Another change is to move from the traditional target rate of inflation from 2 percent to 3, a seismic move from the traditional pattern, but which is under serious consideration by its main proponent Richard Clarida, vice-chairman of the Reserve, who “is spearheading an internal strategy review to determine whether the Fed should start making up for below-target inflation during recessions and slow recoveries by allowing for above-target inflation during expansionary periods.”

Clarida laid out his plans late last month at the University Of Chicago Booth School Of Business at its monetary policy conference.

And though the review is still in its early stages, the Fed already seems to have embraced the idea that inflation might be allowed to exceed 2% without immediately triggering a tightening, something unheard of in previous decades.

Despite this dovish tone, the president and his staff are taking a full court press to make the strong economy the capstone of his reelection campaign.

“Trump’s presidency has been dotted with controversies, and he is a polarizing figure. As such, his political fortunes may be even more tied to the economic winds,” and “I think his reelection bid will live or die based on the economy,” said Mark Zandi, chief economist of Moody's Analytics, to The Hill.

In turn Trump said to generous crowds in Ohio, “It's going to be really easy on the debate stage when they hit me with nonsense and I say, 'Really? But African American unemployment — the best it's ever been,’” he said in Lima. “Hispanic, Asian, women, everybody — it’s all the best it’s ever been.”

“How do you top that in a debate?” he said. “What are they going to say?”

With a stay on interest rates, and a solid, if not great economy, and debates on future economic growth, it may be a case that the 14 Democratic hopefuls are going to have to look beyond Trump’s tub thumping and see the realities of American lives, and that will truly be a debate.

February Jobs Report drops the bomb

In a surprise to almost everyone from barkeeps to bookies, the U.S. economy gained a paltry 20,000 jobs, in February, the smallest gain in over a year, in an economy that has been touted as the strongest ever --- from the White House, to sound and strong, from Fed Chair Jerome Powell.

With more than a few heads to scratch, who predicted 180,000, some wondered aloud at what happened, and one of them “Carl Tannenbaum, chief economist at Northern Trust in Chicago, said Friday’s news from the Labor Department was worrisome. “This is a disappointing report,” he said to The New York Times;. “I don’t think there’s any way to sugarcoat it.”

Some economists have other worries and are wary that there might be a recession, or at the very least a slowdown coming after the good times of recovery, yet others are saying that February is always a coin-toss coming after retail highs and lows of the holiday season, and smaller pocketbooks on both side of the shop, and that it’s more of a pause than a long lasting trend.

Americans are worrying about the economy and 56 percent say that it is slowing down, or entering into a recession, while 41 percent say it is growing. And, Gallup reported at the end of last month that 77% of Republicans think it’s growing, while 82% of Democrats say it’s slowing down or in recession.”

Before our analysis, let’s take a look at the good news: “3.4 percent year-over-year wage growth, the strongest in a decade. Revisions to previous months’ estimates added 12,000 jobs, bringing the average gains for December, January and February to 186,000. The official jobless rate fell to 3.8 percent, from 4 percent in January.”

“The report also showed signs that companies are paying up for employees in a tight market. Average hourly earnings for private workers rose 0.4 percent from the prior month, topping estimates, following a 0.1 percent gain. That indicates the economy may get a lift from wage increases at companies including Amazon Inc. along with Costco Wholesale Corp., which said Thursday it’s boosting starting wages,” reported Bloomberg News.

The question remains, as it has been for many months, is that enough to meet the needs of working Americans, and the answer, for many, is no.

  

CEO Jack Kelly writing for Forbes, gave some important qualitative observations, saying in part:

“From a microeconomics perspective, as the CEO of a major recruiting firm, I question some of the conclusions drawn from the data. We have not seen significant salary offers to job seekers. If the labor market is as tight as claimed, it would be reasonable to believe that job offers would go much higher to attract a smaller pool of applicants, but we are not seeing this happen. A tight job market would also require materially enhancing the compensation of existing employees in an effort to retain them in a tight job market. We are not seeing this trend happening either.”

But, then again, there was statistically significant change for some groups, and, “Among major worker groups, the jobless rate for Hispanics also declined sharply to 4.3 percent from 4.9 percent in January. The rate for African-Americans rose two-tenths of a point to 7 percent, while the level for whites declined to 3.3 percent from 3.5 percent,” cited CNBC.

Also a broader measure of employment that includes part-timers who would prefer full-time work and those too discouraged to search fell to 7.3 percent from 8.1 percent. “That’s a year’s worth of improvement in one month,” said G. Scott Clemons, chief investment strategist at the private bank Brown Brothers Harriman.”

The latter is the good news and provides a measure of stability -- if the trend can hold, and it was one indicator that bankers, economists and analysts alike have long been concerned about.

Bad weather and weak growth in wages have contributed to those leaning into hiring, but demurred in February, yet there are some signs of job expansion, by some companies, but just not enough of them, say some.

That wage increase, while still small, “may get a lift from wage increases at companies including Amazon Inc. along with Costco Wholesale Corp., which said Thursday it’s boosting starting wages,” continued Bloomberg.

Others are more sanguine; and there is a move by some companies to convert temps to permanent positions, according to staffing firm Adecco, but increases in that area, and others, vary by geographic region, with gains in one, and losses in the others.

The increase is not seen in rural areas, and the Times quoted the “Brookings Institution’s Hamilton Project [who] found that “rural counties — the majority of which were already struggling — seem to be increasingly left behind with employment barely growing over the last five years.”

For those readers looking for a formula here is one: “The jobless rate fell in part because of the vagaries the Labor Department uses to calculate the headline rate — there was an increase of 198,000 in those considered not in the labor force, while those classified as unemployed fell by 300,000 and the ranks of the employed decreased by 45,000, according to the household survey,” also reported CNBC.

It is important to know that recovering from any depression is patchy, and there are those that are more pessimistic.

“I don’t think you want to say that 20,000 is the new trend, but the trend probably is shifting down,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “It’s hard to know with precision how much of a downshift there will be. We’ll see job growth better than this, but not as good as we saw last year.”

Showing optimism is “Ryan Sweet, head of monetary policy research at Moody’s Analytics Inc,” who noted, “There's no reason to panic. You average the couple months together and the jobs market is still doing well. Job growth will slow this year, as the economy begins to moderate. But 20,000 jobs is not what we’re going to be creating month-in and month-out.”

“William H. Stoller, chairman and chief executive of Express Employment Professionals, which is based in Oklahoma City,” said, “I’ve been in this business over 40 years, and February always presents kind of a pause.”

He is not alone, and Constance Hunter, chief economist at KPMG LLP, said on Bloomberg Television, “There was always going to be noise in this as a result of the shutdown.”

The partial government shutdown by President Trump also clouded the report and gave the lows, but also some false highs with industries like ride-sharing companies that had some federal workers driving to put food on the table, showing increases.

Bloomberg News may have summarized February the best: “Policy makers and economists are likely to wait for several months of weak hiring before concluding there’s cause for concern in the labor market. The figures also validate the Federal Reserve’s January decision to pause interest-rate hikes while awaiting signs of a more-persistent acceleration in inflation.”

Caution may be the watchword, and the increase in year-over-year wages to 3.4 may have encouraged some companies to remain bullish with hiring like “Ace Hardware, a cooperative of independently owned and operated hardware stores, expects an additional 160 stores will open this year, creating 2,500 jobs, said Kane Calamari, the company’s personnel chief.”

“The real challenge is the shortage of people,” said Tom Gimbel, chief executive of LaSalle Network, a staffing firm in Chicago, added, and that remains good for the more urban markets, but it seems based on prior reports that cautious optimism reigns.

Fallout of Cohen testimony leaves Dems at the crossroads

Last week’s testimony before the a House Oversight and Reform Committee, by Michael Cohen, a personal attorney and self-styled “fixer” for Donald Trump, drew over 13.5 million television viewers and made the case, for some, that this time, he was not lying as he had done in previous testimony to Bob Mueller, special investigator.

“I would argue he has less motivation to lie now than he ever did before. What does he have to lose?” Rep. Gerry Connolly (D-Va.) told reporters amid a break in the hearing to vote. “He is already going to jail. He has been disbarred. His family is fractured. His future is gone. Maybe he can get a book contract out of it. I would argue he has no motivation to lie right now, none.”

The revelations of hush money paid to porn star Stormy Daniels, came to the fore as did his assertion that Trump falsified the worth of his holding downward to gain tax advantages, and vice versa, when the need suited him; along with using the Trump Foundation to avoid taxes, and a litany of abuses that many House Democrats say amount to obstruction of justice.

“Cohen testified extensively about Trump’s involvement in a scheme to pay off women who claimed to have had affairs with him during the 2016 campaign — in connection with which Cohen pleaded guilty to violating campaign finance law,” reported The Hill.

While there are those that smell blood in the water --- including the president, if his rant at CPAC is any indication -  the word impeachment is being said in a louder voice. Yet, and this is a big yet, can the Democrats afford to run this train to the station?

Yes, and no, say some and others say no ---- the most obvious history lesson, taking a rearward glance  --- has to be seen in 1998, when the GOP ruled, under Newt Gingrich, and the Dems, in a stunning rebuke got 6 seats, and President Bill Clinton was re-elected in a landslide.

Democrats were able to regain the House on a trifecta of issues: healthcare, voting rights and corporate finance reform; staying on script, with legislation is vital; and, becomes a real challenge after the partial government shutdown, when Trump wanted The Wall, and then the fallout by Rep. Ilhan Omar over her anti-Semitic remarks about our support for our long term ally, Israel.

And, if the president threatens to not cooperate, as he did at CPAC, and in the State of Union address, painting “any attempts by the House Democrats to perform their constitutional oversight duty as a threat the nation's security and prosperity,” then more is truly the better.

If as the more radical, at least vocal, members, have their way, Trump should be dragged from the White House, and placed in an orange jumpsuit. Pronto.

For some the sight might be, what was called a generation ago, “a Kodak moment”, providing even better optics than Watergate and the exile of Richard Nixon to California; yet, it would hamper the stately party of Roosevelt, as “getting” Trump - a miscalculation that, in part, helped to defeat Hillary Clinton.

The question remains is can there be two efforts, one to provide mandated Congressional oversight over real abuse, as evidenced by Cohen, and at the same time govern on the agenda that brought the Dems, and Nancy Pelosi, back to the helm?

Pure partisanship says “yes”, but a more nuanced effort, says “yes”, and then some; moves that show the much vaunted integrity of the Democratic party, but also to set the tone for the 2020 presidential campaign, while simultaneously governing on the elected agenda.

That tone of censure to those reflecting on someone whose behavior is that of a thug might play in some areas, but the best course is to tread carefully, and doggedly, as well as by careful timing: all essential ingredients should this balancing act succeed.

Then there is the specter of impeachment, which Pelosi has pushed to the back burner, a wise move considering that it would have no chance in the Senate, and the blowback could see the Democratic agenda begin to sink before it leaves port.

“Starting impeachment proceedings seems unlikely to end in a Senate conviction given the two-thirds majority needed in a body Republicans control with a 53-47 majority. That makes it a tricky political proposition, especially as Democrats eye a 2020 election they think could end the Trump era and leave Democrats in control of Congress and the White House. That scenario would leave Pelosi with the chance at scoring some sweeping policy achievements on health care and climate change in her last years in Washington.”

Far better to focus on the Congressional duty of oversight, rightly, while doing a 24/7 effort to stay on track with the legislative agenda and focus on what the Dems were voted in on, but, and this is imperative, to not neglect some glaring notes, for example, that “Cohen also revealed that he briefed then-candidate Trump as well as Ivanka Trump and Donald Trump Jr. on efforts to build a Trump Tower in Moscow a half-dozen times during the presidential campaign,” a key revelation, since Candidate Trump denied any efforts to build there.

In the eyes of the law, there is more: “Though it’s unclear whether Donald Trump and other Trump Organization officials like Trump Jr. were aware that the payments to Daniels and Karen McDougal, another woman who says she had an affair with Trump, violated campaign finance laws that make it illegal to make an unreported donation of more than $2,700 to a candidate in a general election, Cohen acknowledged under questioning from Rep. Ro Khanna (D-CA) that the hush payments scheme is akin to a criminal conspiracy.”

That became the tipping point for many viewers, but it also sets the stage for much more: “Democrats on the House Judiciary Committee unleashed a sprawling probe of President Trump's family, campaign, business and administration on Monday that includes more than 80 requests for documents,” said The Hill.

In the aftermath of the Cohen testimony, “The investigation under Judiciary Chairman Jerrold Nadler (D-N.Y.) will focus on three key areas: obstruction of justice, public corruption and abuses of power. Nadler rolled out the expansive investigation less than a week after the president’s former attorney Michael Cohen delivered explosive public testimony against him on Capitol Hill.

Democrats will be looking at those involved in the June 2016 Trump Tower meeting between Trump campaign officials and a Russian lawyer linked to the Kremlin, the Trump Organization's plans to build a Trump property in Moscow and a scheme to pay off two women who alleged they had affairs with Trump before the 2016 election.”

All of this is separate and apart from the Mueller investigation and another one from the Southern District of New York on Trump corporate business holdings, creating an extensive web that the president will have to fend off, as he sees attacks coming from all sides.

With predictions as common as noses, the air in Washington and New York is peppered with subpoenas, and the future is all that can be called our own - for now.