OP 2019: Trump tells Powell 'you’re fired'
Head of FX Strategy
Summary: Long-simmering tensions between US President Donald Trump and the chairman of the Federal Reserve come to a head and Jerome Powell is dismissed. His replacement's new policies shock many people, especially savers.
For the full list of Saxo's 2019 Outrageous Predictions, click here.
At the December 2018 Federal Open Market Committee meeting, Federal Reserve chair
Jerome Powell signs on with a slim majority of voters in favour of a rate hike, even as
corporate credit spreads are spiking higher and equities are showing signs of strain.
The hike is at least one too many and the US economy and US equities promptly drop
off a cliff in Q1’19. Rather than riding to the rescue, the Powel l Fed indicates that it
would be inappropriate to restart the serial bubble-blowing machine former Fed chair
Alan Greenspan revved up as far back as the ‘90s. Instead of another incarnation of
QE, the Powell Fed merely tinkers with the pace of quantitative tightening and a
one-off rate cut.
Powell argues that a clearing of bad debts could have long-term benefits. By the
summer of 2019, with equities in a deep funk and the US yield curve having moved to
outright inversion, an incensed President Trump fires Powell and appoints Minnesota
Fed President Neel Kashkari in his stead.
The ambitious Kashkari was the most consistent Fed dove and critic of tightening US
monetary policy. He is less resistant to the idea of the Fed serving at the government’s
pleasure and is soon dubbed ‘The Great Enabler’, setting President Trump up for a
successful run at a second term in 2020 by promising a $5 trillion credit line to buy
Treasury Secretary Mnuchin’s new zero-coupon perpetual bonds to fund Trump’s
“beautiful” new infrastructure projects and force nominal US GDP back on the path it
lost after the Great Financial Crisis.
Under Kashkari’s bold nominal GDP forcing, nominal GDP growth rises at a 7% clip,
with inflation running at 6% (even if reported at 3%), while Fed policy is all the way
down at 1%. That enables deleveraging you can believe in via fin ancial repression to
the great “joy of debtors and great detriment of savers.
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.