There have been a lot of rumors during the weekend that the new president elect wants to end the Fed’s independence and place it under the executive branch, which will give the President direct supervision on, and therefore the right to dictate or influence, Moneyary Policy. There’s no question that if someone wants to “own” something, it’s because he intends to use it. In this case, Trump wants to see lower rates, and even though Powell is on a path to lower them, he might want to go faster. If you look at the chart below, you can see that as we stand today, with the path of lower rates that Powell has communicated, inflation is expected to get a boost of 1% over base case scenario, which may put CPI growth above 3% again. That can happen without considering any fiscal stimuli such as lower tax rates, or any additional debt. Inflation has been one of the key determinants of the elections, and yet, it would appear as if we’re setting up the basis for a second wave. The bond market is starting to worry, and we can see that on the yields. Something to keep an eye on.
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