Asks if the Fed/Trump conflict creates a tradable 'Sell America' event, noting market response: U.S. stocks underperforming, dollar weakest in two weeks, 30-year yields highest in a week.
Dani Burger
Rebecca Patterson
Directional market response makes sense. Greater risk of Fed losing independence or being perceived as politicized would be reflected in markets. For this to become more than a short-term reaction, we'd need more escalation.
Asks about the biggest geopolitical risk, mentioning Mexico.
Matt Miller
Rebecca Patterson
Boots on the ground in Mexico is unlikely but underpriced. It's a critical trade partner. Taiwan is the known risk.
Questions the economic sense of Trump's affordability push: banning institutional home buyers, stopping defense buybacks, capping credit card rates at 10%.
Matt Miller
Rebecca Patterson
Feels like policy folks gave Trump a list of things that might help affordability and he's throwing them at the wall. The credit card cap helps those who keep cards but hurts those whose accounts are closed, pushing them to worse alternatives. Efforts against the Fed (raising long-end yields) work against other affordability measures like buying MBS.
Asks how to approach this as a market participant: assume Trump is serious due to midterms, or assume things won't get done?
Dani Burger
Rebecca Patterson
The irony is that doing everything to address affordability creates policy uncertainty that hurts business investment and hiring. Outside of AI, CapEx was very soft last year. The economy is doing great but could do better with more certainty.
Argues the economy is growing above trend despite restrictive Fed rates, questioning the need for cuts.
Matt Miller
Rebecca Patterson
We don't need a rate cut. Unemployment is 4.4%, core CPI is ~2.7%, almost a point above target. The mortgage rate problem is as much a function of the fiscal situation as the Fed funds rate.
Asks if the muted market reaction is because the economy is good and inflation isn't a problem, and how different it would be if inflation was a problem.
Dani Burger
Rebecca Patterson
The market reaction isn't bigger because the economy is still doing quite well. We have good earnings coming, fiscal stimulus from tax refunds, and the wealth effect. Shocks have more contagion if the economy is already vulnerable; we are not vulnerable.
Suggests the conflict might encourage Powell to stay on as a 'shadow Fed chair', making a Trump appointee a lame duck, which could prevent a curve steepening event.
Dani Burger
Rebecca Patterson
We will have a steep curve all year. Whoever is named next Fed chair will carry the stigma of not being independent, which is a shame.