This "Market's Reckly" video, recorded on December 6th, provides an analysis of recent market activity and delves into two key policy fronts: potential changes at the Federal Reserve and a shift in US foreign policy, particularly concerning Europe, as outlined in the White House's National Security Strategy.
The speaker starts by observing a quiet market with range-bound price action in the past few weeks, albeit with major equity indexes trending slightly higher. He maintains his optimistic outlook, suggesting the S&P 500 could reach 7,000 by year's end.
The first major topic is the potential for Kevin Hassett to become the next Federal Reserve Chair. The speaker notes that President Trump appears to have settled on Hassett, his long-time economic advisor, for the role. Hassett's credentials are sound, with a Ph.D. in economics, experience at the Fed, and positions in influential conservative think tanks. He has served as an economic advisor to multiple Republican presidential candidates and, eventually, to President Trump, rising to Chairman of the Council of Economic Advisors and now President of the National Economic Council.
The speaker believes Hassett's appointment would likely lead to a more dovish Fed policy. While not predicting radical interest rate cuts, he suggests that Hassett could interpret economic data and the Fed's dual mandates (employment and inflation) in a way that favors lower rates. He acknowledges that the Fed isn't a one-person entity, highlighting the influence of other governors and regional bank presidents, some of whom are quite hawkish.
This leads to the discussion of Secretary Bessen's plan to exert more influence over the Federal Reserve. Bessen has expressed concern that some regional Fed presidents are not representative of their districts, being “parachuted in from New York”. He proposes a rule requiring regional Fed presidents to have lived in their district for at least three years. The speaker highlights the President of the Cleveland Fed and the President in Texas as examples. Although Bessen states this would not be retroactive, these individuals are up for reappointment soon. The speaker postulates this could be a play to gain more influence over the Fed, similar to a pending lawsuit against Lisa Cook, a Fed governor.
The speaker concludes that the Trump administration views lower interest rates as a priority and is actively seeking ways to achieve this. The plan may work, but the Fed could be politically influenced, for example via yield curve control.
The second main topic is the White House's National Security Strategy, which outlines an "America First" foreign policy. While much of the document reiterates previously known positions, some elements are especially noteworthy. The speaker highlights the reaffirmation of a "Trump-era Monroe Doctrine," asserting US influence in the Americas and implicitly warning against foreign (specifically European) meddling. He cites examples like emergency loans to Argentina and naval presence off the coast of Venezuela as evidence of this strategy in action.
The document also touches on relations with China, reaffirming the status quo on Taiwan without explicitly supporting independence or declaring Taiwan a province of China. The most provocative aspect of the strategy, according to the speaker, is its stance toward Europe. The document suggests that the democratic process in Europe is broken, leading to undesirable outcomes like the ongoing war in Ukraine. The speaker relates this to a speech given by Vice President Vance which noted a similar disdain for European elites.
The administration views European elites as entrenched incumbents who are manipulating the system to maintain power, to the detriment of their people and economies. The Trump administration believes these established powers are blocking the mechanisms and preventing Europe from changing course. The administration thinks the solution to this problem is to replace the established powers through what it calls "cultivating resistance in Europe," which the speaker interprets as a regime change effort. He views this as a revolutionary shift in the transatlantic relationship, indicating that the US may no longer see Europe as an equal partner and may even be actively working to replace its leadership with individuals more aligned with US interests. This could lead to more pro-business, less regulated economies that are more collaborative with Russia, therefore possibly benefitting Europe.
The speaker concludes by anticipating the upcoming Fed meeting, expecting interest rate cuts and the potential discussion of restarting reserve management purchases.