Trump's New Superpower: The Fed Board of Governors

 

Master of Fiscal and Monetary Policy

It is a commonly considered truth that the state of the U.S. economy leading to the end of the first time is strongly influential in presidential re-election outcomes.       

Now, U.S. president Trump is seeking to nominate two nominees who are most likely his political allies rather than independent economists:

 
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Ultimately, 5 out of 6 Fed board of governors will not only be Republican, but also Trump’s picks. This effectively gives the former real estate tycoon and his party incredible power over the U.S. economy, allowing them to control both the fiscal and monetary policy of the country.

Asia vs. USA

In one of our previous posts, we explored the underlying currency war that has been acting in parallel with the Trade War between the U.S. and China

However, the bigger and largely unseen factor here is that many Asian currencies are also appreciating against the dollar, not just the Renminbi:

 
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While Trump’s main target is China, his actions may be unintentionally setting off a potential currency crisis with South East Asia, as their currencies are bearing the consequence of Trump’s economic might against China

This can put pressure on these export-reliant economies:

 
 
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Implications

So far, Trump’s America-First policy has, at least superficially, helped the U.S. The country’s export value is at an all-time-high, and the trade deficit narrowed to $49.4 billion in February, the smallest since June 2018.

Now, armed with a new controlling power over the Fed, Trump will be able to further exert influence over the dollar as well the U.S. economy, whose well-being is detrimental to his re-election bid next year.

Furthermore, as the trade war with China continues to drag on, we are seeing unintended casualties along the way as export-reliant Asian economies are coming under-pressure due to appreciation of their currency against the dollar, which may depreciate further as the Fed is under pressure from the Trump administration to cut rates.

Happy investing.

 
Peter Pham