Dividends and Trump’s meddling in Fed policy could backfire

In mid July, the President went on CNBC and discussed the fed policy. He later tweeted the same things, because he said as a private person I have views. Unfortunately, the President forgets or needs to be reminded he is not a private person, he is public figure and his view is taken very seriously. The President nominates the Chair of the Federal Reserve Bank and with just cause, the President can “fire” the Chair. The trick is the Federal Reserve is suppose to operate independently of the political structure.

The US President similar to all politicians going into the mid term or Presidential elections (in 2 years) wants the economy to be running on all cylinders or full steam ahead, the reason the overwhelming voters number one concern is their source of income. If a person is earning money from working they are likely to be more positive about the existing holders of public office.

The Federal Reserve is suppose to be independent because no politician wishes to raise interest rates, the politicians love to take credit for lower rates. Unfortunately, supply and demand means every once in a while inflation needs to tamed and the closer to full employment means inflation rises. Raising interest rates keeps inflation lower as well the Fed has to do quantitative easing or lowering the amount of debt which was needed to expand the economy after 2008.

In addition, the tax cut to corporations and the wealthiest individuals, most of it permanent helped stimulate the economy. Raising rates should lessen the stimulation as it does not need government assistance to keep going. If you add, the President discussing increasing tariffs on China and other countries around the world, then you have a problem caused by President Trump’s own policies.

The tweets moved the dollar, added uncertainty to the future and everyone said TGIF.

Linking to dividend paying stocks, often politicians who are reasonably new make mistakes because they fail to understand their words means investors need to react to them – both plus and minus. The President is almost 2 years in, there is no excuse for not considering the ramifications of his words. In the summit in Helsinki, the President had to correct his words, the markets will see if history repeats itself again.

There are more questions than answers, till the next time – to raising questions.

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