The Federal Reserve has shifted its stance, ever so gently pivoting from data dependent to Trump dependent. Until now, the post-crisis Fed has claimed to be data dependent in its policy making process. But waiting for the data to justify tighter monetary policy has been an arduous, painful process. It took three rounds of quantitative easing, and years of persistently low rates to maintain the economic recovery. Even then, the Fed has been forced to step back from tightening policy a number of times. This time may be different, however. Now, it has Trumponomics.
In the past, when the Fed attempted to tighten policy, it was forced to step back. Whether driven to do so by a shock from China or a slowing in the U.S. economy, those shifts were data driven—shocks or potential shocks to inflation or employment. Now, the Fed seems to be de-emphasizing its self-imposed data-driven mandate in favor of a new dependency—Trump-dependent policy rule.
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