Guest post by Joe Hoft
Chief Economist Brian Wesbury Says the Only Thing Stopping Additional 40% Stock Gains Over the Next Two Years Under President Trump Would Be Excessive Fed Funds Rate Hikes or a Tightening Federal Monetary Policy.
Brian Wesbury joined Stuart Varney Friday morning on Varney and Co. to discuss the Trump economy. Wesbury argued that the stock market will see great gains in the next two years. He also noted that the only thing that could sideline these increases would be related to actions by the Fed:
Brian Wesbury: The number one cause of recessions in the Federal Reserve. When they raise rates too much, when they tighten monetary policy too much. Right now the fed has $2 trillion of excess reserves in the banking system and until they get them out they are not going to be running a tight monetary policy. Therefore I would say the odds of recession are extremely low.
The only other item that Wesbury believes could stop the Trump economy are tax hikes which under President Trump are very unlikely.
Via Varney and Co.:
Wesbury has a point.
Since 2000, the Federal Reserve increased the Fed Funds rate excessively under President Bush between 2004 and 2006. These excessive increases led up to the 2009 recession and may have at least partially influenced the economic disaster at that time.
If the Federal Reserve was political and wanted to prevent Republican Presidents from successful economic growth, then the Fed would increase the Fed Funds rates during Republican Presidents’ terms while decreasing the Fed Funds rates under Democratic Presidents’ terms.
In the past 10 years there have been only four Fed Funds rate increases. Three of those increases occurred since President Trump won the election on November 8th, 2016.
No Fed Funds Rate increases took place between June 2006 and December 2015. CNBC reported in December 2015 that President Obama oversaw “seven years of the most accommodative monetary policy in U.S. history” (from the Fed). The Fed Funds rate was at zero for most of Obama’s time in office. Finally, in December 2015 after the Fed announced its first increase in the Fed Funds rate during the Obama Presidency, it was reported that:
Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic conditions, the committee decided to raise the target range for the federal funds rate to ¼ to ½ percent,” the FOMC’s post-meeting statement said. “The stance of monetary policy remains accommodative after this increase, thereby supporting further improvements in labor Premarket conditions and a return to 2 percent inflation.”
The only Fed Funds Rate increases after 2015 were after President Trump was elected President. The Fed increased the Fed Funds Rate on December 14, 2016, on March 15th, 2017 and again on June 14, 2017.
The Fed Funds Rate greatly impacts the economy:
Lower interest rates usually spur the economy by making corporate and consumer borrowing easier. Higher interest rates are intended to slow down the economy by making borrowing harder.
So the question is whether the Fed is trying to negatively impact Republican President Trump’s economic recovery after the abysmal economic Obama years (Obama was the only President where the GDP growth rate never broke 3%) or is the economy just so much better now that President Trump has taken office?
President Obama’s policies were so horrible that the historically low Fed Funds interest rates did nothing to spur the Obama economy. Now the only thing stopping President Trump’s economic prosperity for the United States is the same group that gave Obama the most “accommodative monetary policy in U.S. history”.