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Janet Takes a Stand

11/18/2016
By Charles Payne, CEO & Principal Analyst

I have been talking about growing animal spirits and the chance to spark the economy in an organic fashion that leads to higher wages and a higher stock market with less risk. This would be the opposite of the Fed rally that petered out a couple of years ago, and never sparked that so-called wealth effect. Consequently, a rally built on unleashing the DNA of the nation would be less vulnerable than actions taken by the Federal Reserve.

Where does this leave the Federal Reserve and its leader Janet Yellen?

Will Yellen serve her full term? Charles interviewed Forbes Media Chairman
Steve Forbes on Janet Yellen’s plan to serve her full term.

Central bank money-printing has taken a major hit on Main Street over the years, as it was a central campaign issue for Donald Trump. The widening gulf between the super-rich and everyone else has been blamed on several factors that make up globalization:

  • (Poor) Trade Deals
  • (Poor) Immigration Policies
  • Central Bank Money-Printing
  • High Taxes
  • Costly Wars

Donald Trump even featured Janet Yellen in a late television commercial that might have put him over the edge (late deciders broke decisively for Trump).  Since its inception, the Fed has been political. The Creature from Jekyll Island came about during a 1910 train ride to go “duck hunting” at Jekyll Island, Georgia that included Rhode Island Senator Nelson Aldrich and several Wall Street heavyweights. 

In recent years, there has been a big push to mitigate the power of the Fed; check with thorough audits or simply scrap it altogether. At the very least, the hope was that a Trump win could mean a fresh and less partisan face at the helm. Well, Janet isn’t hearing any of that noise.  In her testimony, she fired a shot across the bow of Trump’s campaign that seemed to say: “bring it on!”

Janet Yellen’s visit to Capitol Hill gave us more clarity than usual and more defiance, too.  It should be noted there were only two Republicans at the hearing and seven Democrats who used the gathering to reinforce the importance of the Fed and to allow Yellen to declare her independence. Yellen mentioned the fact that Congress gave her the job and she had long established the Fed’s dual mandate.  The Fed chair also warned of ditching the Dodd-Frank Act as well, but I think there will be a compromise there just like Obamacare.

Here is some of the Q & A

Q: Any reason Ms. Yellen won't serve out her term as chair?

A: “No I cannot,” she said when asked by Rep. Carolyn Maloney, D-NY. “I was confirmed by the Senate, Congress selected me to a four-year term ends in January 2018, and it is fully my intention to serve out my term”

Q: What is the need and importance of the Fed’s independence? Asked by Sen. Amy Klobuchar, D- MN

A: “Thank you for that question; central banks are more effective when they can make tactical decisions free of political pressure. A compromised central bank can lead to high inflation or even hyperinflation.”

There has been the talk of the Trump administration; along with the GOP that Congress could actually rewrite the rules that govern Fed employment.  That would be going to significant extremes and probably roil the markets dramatically. There are going to be five vacancies over the first year and a half, but Yellen isn’t going anywhere.  Moreover, she might be more aggressive at hiking rates once tax cuts and infrastructure spending kick in.

Wouldn’t that be a turn of events?

For now, the Street is ready and is okay with a 25- basis point hike next month and hints at two hikes in 2017.  More than that, there will be howls from Republicans and investors that will watch the Fed take the most feckless approach to rate management in their history.

After the Close

The retail resurgence continued after the bell closed on Wednesday, with Ross Stores (ROST) beating earnings consensus and rocketing higher.

Also after the close, huge earnings win for Salesforce.com (CRM) and Marvell Technology (MRVL). It could spark all the tech, which has already begun to crawl back.

Animal spirits are in the air, and they are very real.

Charles Payne
Wall Street Strategies


 

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