Of Course Trump is Setting Up the Fed; Fed Balance Sheet Rises $0.4 B

ZeroHedge: Is Trump Starting To Lean On The Fed Or Setting It Up?

Is Trump Setting Up The Fed As The Fall Guy?

CNBC’s Steve Liesman raises an interesting question: is Trump setting up the Fed to take the fall for his trade policies gone bad? Farmers are really starting to feel the pain.

Smoot-Hawley did not cause the Great Depression. Rampant credit growth caused the depression. Trump's trade policies orders of magnitude smaller than quantitative tightening, in both economic and financial market impact.

The Federal Reserve increased its balance sheet (natural increase through interest payments) by $0.4 billion in the week ended July 18. Treasuries declined $0.7 billion.

If you believe the stock market will "catch-down" to the Fed's balance sheet reductions, the S&P 500 Index is now 8 percent "overvalued." The post-2016 rally appears to be an optimism burst following President Trump's victory. Before then the S&P closely tracked the balance sheet growth and since January it has often been correlated with weekly Fed balance sheet moves.

Chinese yuan follows Fed's balance sheet expansion (correlation, not the 1-to-1 percentage change seen in the S&P 500) and when the Fed announced the end of QE, the yuan starts becoming a volatile currency.

There are two weeks left in July. The Fed still has nearly all of its required reduction outstanding, or $37.9 billion, including $25.6 billion in treasuries. Since July 31 is a treasury maturity date ($28.4 billion) it looks like most of the treasuries may come off in the week ended August 1. The only comparable period is two-weeks in the latter half of February. The Fed rolled $41.5 billion off its balance sheet, $11.9 billion of it treasuries. There is no comparable period in 2018 for the $25.6 billion in treasuries about to come off. The closest is the three weeks from end of April to mid-May, when $26.3 billion rolled off.