Financial Markets

Trump Claims Stock Market Rise Can Erase National Debt

President Trump “suggested that a soaring stock market might be ‘in a sense’ reducing the national debt, a statement that is not true, in any sense,” the New York Times reports.

Said Trump: “The country — we took it over and owed over $20 trillion. As you know the last eight years, they borrowed more than it did in the whole history of our country. So they borrowed more than $10 trillion, right? And yet, we picked up $5.2 trillion just in the stock market. Possibly picked up the whole thing in terms of the first nine months, in terms of value.”

He added: “So you could say, in one sense, we’re really increasing values. And maybe in a sense we’re reducing debt.”

White House Walks Back Trump Comments

President Trump casually told Fox News last night that the United States “would have to wipe out $75 billion in debt owed by Puerto Rico to bondholders around the world,” Politico reports.

“Wall Street promptly freaked out, sending Puerto Rican bonds into a tailspin and leading the White House to move swiftly to clean up Trump’s seemingly offhand remarks.”

Yellin and Cohn Still on Shortlist for Fed Chair

“The White House has created a list of about a half-dozen candidates to be the next leader of the Federal Reserve, including its current chairwoman, Janet Yellen, and the president’s chief economic adviser, Gary Cohn,” the New York Times reports.

“The list also includes Jerome Powell, a member of the Fed’s board of governors; Kevin Warsh, a former Fed governor; and the Stanford University economist John Taylor… Preliminary interviews with some candidates have already begun with an eye toward presenting finalists to President Trump later this year.”

Yellen Rejects Trump Approach to Bank Regulation

Federal Reserve Chairwoman Janet Yellen “offered a forceful defense of broad new banking regulations enacted after the 2008 financial crisis, saying the rules safeguard the economy against another crisis and rejecting assertions from President Trump and top aides that they should be rolled back,” the Washington Post reports.

Politico: “The Fed chief’s remarks are implicitly a pitch of how she would lead the central bank if President Trump chose to keep her at the helm of the Fed; the 71-year-old economist’s term as chair ends at the beginning of February.”

Cohn Seen As Next Fed Chair

President Trump “is increasingly unlikely to nominate Federal Reserve Chair Janet Yellen next year for a second term,” Politico reports.

“National Economic Council Director Gary Cohn is now the leading candidate to succeed Yellen as the world’s most important central banker… If Trump taps Cohn for the Fed, it could enrage economic nationalists in the White House and some staunchly conservative Republicans on Capitol Hill who don’t like the former Goldman Sachs president’s background as a Democrat who generally favors free trade.”

Cohn Sold Shares As He Touted Financial Overhaul

“On the same day that President Donald Trump’s top economic adviser, Gary Cohn, publicly promoted the administration’s plans to overhaul financial regulations, part of Cohn’s stake in Goldman Sachs Group Inc. was sold,” Bloomberg reports.

“The bank’s share price rose that day by 4.5 percent on news of the planned regulatory review, as other financial-industry stocks also advanced.”

Can the Fed Survive This New Era of Populism?

New York Times: “The pressing question for this era of populist policy making and popular anger is whether the Federal Reserve as we know it — arcane and academic, with the autonomy to set monetary policy as it sees fit — will survive the tension this time.”

“Given the ferocious discontent with the ‘establishment’ stoked by Mr. Trump among his angry electoral base, the threat against the Fed this time seems of a higher order.”

Quote of the Day

“It is hard not to laugh, to see President Trump alongside these Wall Street guys. I have to say this Jake, and I don’t mean to be disrespectful, this guy is a fraud.”

— Sen. Bernie Sanders, in an interview on CNN.

Trump Plans to Undo Banking Regulations

President Trump “will order a sweeping review of the Dodd-Frank Act rules enacted in response to the 2008 financial crisis, a White House official said, signing an executive action Friday designed to significantly scale back the regulatory system put in place in 2010,” Bloomberg reports.

“Trump also will halt another of former President Barack Obama’s regulations, hated by the financial industry, that requires advisers on retirement accounts to work in the best interests of their clients. Trump’s order will give the new administration time to review the change, known as the fiduciary rule.”

Politico: “Overhauling the Dodd-Frank law would undo one of former President Barack Obama’s signature legislative initiatives. Trump has taken up the Republican argument that the law has discouraged lending and prevented new firms from being formed.”

Fed Begins to Raise Interest Rates

“The Federal Reserve said it would raise its benchmark short-term interest rate for the first time in a year and expects to lift it faster than previously projected in the coming year,” the Wall Street Journal reports.

“They also indicated they see a brightening economic outlook and expect to raise short-term rates next year by another 0.75 percentage point–likely in three quarter-point moves.”