The Federal Reserve has always been that organisation that controlled its own destiny and that of the entire financial world. There are those who sit on the right that would have us believe that the FED has been overtaken by the left and needs reform. To some degree politics has influenced the Federal reserve but for the most part it has been for the benefit of the stock market, thus the middle classes. It is rather baffling to see the Republican right somehow feeling the need to attack the FED, seeing the FED has had little interest in politics or politicians. Let’s not forget, the FED is a private bank and simply wants to make money and that means higher rates.
Unless you lived under a cave for the past decade, you would know that rates have been low so profits for the FED have been low. Yellen is pushing for a likely 3% by the end of the decade. So why is the Dollar still relatively down? The big elephant in the room is the trillions of dollars of debt on the FED balance sheet. Yep! We have not forgotten. In 2008 the Federal reserve embarked on treasury and mortgage backed security purchases, some $4 trillion worth. So now the Trump administration wants to see those treasuries sold off, a kind of aggressive tightening, this would have a major impact on bond prices thus creating unnecessary stability. The other option is to let those treasuries mature since most are under 5 years, this is probably the safer and smarter way and this is what the FED wants. The market clearly does not trust the FED will get what it wants because Yellen may get fired, if this doesn’t happen then she resigns in 2018 anyway, this would mean a new chair, I am sure the President is already looking for his next candidate to swear fealty. So what now? Short answer… Who the hell knows? Not quite an answer, just another question.
So we think that longer term the Dollar will maintain value prone to information shocks and this doesn’t make for a pleasant investor experience. It’s a new dawn of far right control politics. Not that it will get anywhere.