President Donald Trump speaks tonight to a joint session of Congress. The expectation is that he will present–in general terms–a budget with a big increase for military spending and cuts to programs at departments such as the Environmental Protection Agency and the Department of State. The betting is that he’ll also talk about big plans for a cut to corporate and individual taxes–and maybe mention a border adjustment tax that will help pay for these cuts and the added spending. The President has promised to mention his plans for infrastructure spending and he will have something to say about repealing and replacing Obamacare with something dramatically better (although no one expects much in the way of details on this one.) Maybe there will also be language on the repatriation of corporate profits now held overseas. And for sure there will be promises to roll back regulation.
Tomorrow morning we’ll see if Trump said enough about the subjects near and dear to Wall Street’s heart–less regulation of the financial sector and lower corporate taxes–to keep the post-Trump-victory rally going.
But the real important reaction, the one that I’ll be watching most closely will come from the Federal Reserve. A full calendar of speeches from Fed officials will culminate on Friday with talks by Stanley Fischer, the vice-chair of the Fed, and Janet Yellen, the Fed’s chair.
In the minutes to the January meeting of the interest-rate setting Open Market Committee, the Fed made it clear that one of the uncertainties standing in the way of an interest rate increase as early as its March 15 meeting (but more likely the May 3 meeting and even more likely the June 14 meeting) was uncertainty about fiscal policy under a Trump administration. The questions from the Fed included How much stimulus the economy was about to get from government spending? and How big a deficit would the administration propose and Congress approve?
I’m pretty sure that the Fed won’t get all the details that it wants in tonight’s speech but that the President will sketch in some of what the Fed wants to know.
It will be “interesting” to see if the Fed feels, after listening, that the Trump administration is likely to pursue policies that will add to the current near 2% rate of inflation and whether its budget is likely to push the U.S. dollar up or down.
Yellen’s talk Friday is at the Executives’ Club of Chicago. That’s a format that will let her say as much or as little as she wants.
