Maybe that should be “wild cards.”
First, there’s President Donald Trump’s threat to shut down about 25% of the government on December 22 if Congress doesn’t include $5 billion for his border wall in its bill to fund such government units as the Department of Homeland Security. The shutdown could leave about a quarter of the government without funding, as well as one-third of federal workers without paychecks, three days before Christmas. Neither side is showing signs of budging with both sides playing to what they perceive as their core constituencies. Democrats, who seem to have a pretty good handle on where the votes aren’t for $5 billion in funding, seem quite happy to let President Trump own the shutdown as he claimed he did after last week’s meeting with Democratic House and Senate leadership. They can read the poll numbers that say a majority of voters would prefer to see a compromise rather than a shutdown. And with the Democratic caucus in the House moving younger and more progressive in the midterm elections, I don’t see much room (or motivation) for Democratic House leader Nancy Pelosi to cut a deal that alienates those newcomers. The Trump administration certainly talked the tough talk on the Sunday news shows. White House senior adviser Stephen Miller and immigration hardliner on Face the Nation said Sunday:“This is a very fundamental issue. At stake is the question of whether or not the United States remains a sovereign country.” He continued by saying that the administration would do “whatever is necessary to build the border wall,” including shutting down the government.
Financial markets don’t seem especially upset–so far–at the prospect of a shutdown. Been there, done that is the reaction. And I don’t expect the worry to move higher unless a shutdown extends beyond two weeks. And it will be hard for the Trump administration to sustain a shutdown for that long since a cut off in pay to those who work border security would be likely to make a horrible situation along the border with Mexico even worse.
Second, there’s President Trump’s decision this morning to blast the Federal Reserve and its apparent intentions of raising interest rates at its Wednesday meeting. “It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!” Trump tweeted today. Unless I completely misread the current character of the Fed, it’s hard for me to see anything that the President could have tweeted more likely to confirm the Fed in its decision to raise interest rates. Backing off on a widely telegraphed interest rate increase after that Presidential attack would deal a major blow to perceptions of the Fed’s independence. However, I do think the President’s comment are likely to make the Fed even clearer about its intentions to take a long break in 2019 before raising rates again–and then only if the data justify the move. The Fed may not be political and it may want to demonstrate it’s independence, but the central bank does pay attention to the headlines. I think the odds are now that the market will get a forceful statement from the Federal Reserve on Wednesday about a halt to interest rate increase after this December move.
