Market News

November 23, 2016  Wed 8:26 AM CT

Donald Trump's support was clearly underestimated before his election as the 45th U.S. president on Nov. 4. It even appears that members of the Federal Reserve may even be happy with his victory.

Consider Stanley Fischer, second in command at the central bank behind Janet Yellen. As late as Oct. 17, he complained about weak productivity and an aging population. His tone grew slightly more optimistic on Nov. 4 (the Friday before the election) as he cited stronger employment and inflation.

The following Friday, Fischer was downright hawkish, telling an audience in South America that the case for a Dec. 14 rate hike was "quite strong." This week he moved even further toward the Republican president-elect by speaking in favor of "improved public infrastructure," "encouragement for private investment," and "more effective regulation."

These arguments have been a long time coming for most economists. The first is interest rates: Trump slammed the Fed for keeping rates too low before the election, and they started climbing even before his victory. The second is that the U.S. economy needs help from someone--anyone--other than central bankers. Fed officials have made this point intermittently for months. Now the White House and a unified Congress appear poised to deliver with increased spending and easier regulations.

James Bullard has followed a similar path. The St. Louis Fed president opposed hiking rates in September and was dovish as late as Oct. 24 because of low productivity. But last Friday he spoke in favor of raising rates and predicted that policy would likely change given Trump's new pro-growth agenda.

Jerome Powell's flip was even more noteworthy. Back on Sept. 29, he saw little reason to raise interest rates because of "a global environment in which growth is weak and there are deflationary forces." The weeks following those comments brought mostly disappointing numbers (two non-farm payroll misses, lackluster Chinese data, and poor durable-goods).

But fast-forward to Nov. 18, and Powell somehow missed those reports. Now now he's calling on Asian countries to boost domestic demand and cut their trade surpluses with the United States. He might not have slammed China for dumping cheap products or manipulating the yuan, but the Obama appointee did seem to be echoing Trump.

Yellen herself was modestly opposed to Trump's agenda during her Nov. 17 appearance in Congress, warning against excessive spending and financial deregulation. Her most stalwart dovish accomplice, Lael Brainard, is in retreat and refused to discuss monetary policy at a presentation in New York last week. (Brainard is a Hillary Clinton ally who famously drove interest rates lower with an easy-money exhortation on Sept. 12.)

Other policy-makers have kept their stances. William Dudley, who's grown modestly hawkish for months, spoke in favor of increased government spending on Nov. 18. Esther George, an established hawk, repeated her comments the same day. Daniel Tarullo made relatively vague comments on Nov. 15. The only FOMC member who doesn't appear to have spoken since the election is uber-hawk Loretta Mester, who's probably very happy to see long-term bond yields explode higher since the election.

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