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Dow Creeps Higher as Trump Stacks Fed with Rate-Slashing Allies

Last Updated September 23, 2020 12:48 PM
Ben Brown
Last Updated September 23, 2020 12:48 PM

Dow Jones futures traded higher on Wednesday as Trump aims to stack the Federal Reserve in his favor.

In a series of tweets last night, he revealed his picks for the two empty chairs on the Fed’s board of governors. The names are Christopher Waller and Judy Shelton, both staunch advocates of low-interest rates.

Trump has made no secret about his desire for low rates, which he believes would rally the stock market. His picks, still unconfirmed by the Senate, would likely tip the Fed in favor of faster rate cuts, theoretically boosting the Dow and S&P 500.

Dow futures point to higher open

Dow Jones Industrial Average (DJIA) futures  ticked upwards in early trading Wednesday, extending yesterday’s strong finish. At 7.18 am EST, Dow futures were 54 points higher (0.2 percent), inching back towards the record high set  on Monday.

S&P 500 futures  set a similar tone, climbing 55 points (0.2 percent), while Nasdaq futures  crept eight points (0.27 percent) higher.

Dow futures chart Wednesday 3rd Juky

Trump’s ultra-dovish candidates for the Federal Reserve

Christopher Waller is the first pick, and most likely to get passed by the Senate. He works alongside St. Louis Federal Reserve Bank President James Bullard who was the only Fed voting member to advocate for a rate cut in June.

Waller takes a similar position to Bullard which is likely to please Dow traders. He questioned the logic of raising interest rates in a recent interview with Bloomberg :

“We didn’t see any overheating in the economy coming, and so the question was, why are we raising rates. We didn’t see any reason to raise rates just for the sake of raising rates.”

Shelton is more of a wildcard pick. She previously called for the US to return to the gold standard. More recently she argued for a looser monetary policy, especially under Trump’s pro-business policies:

“When you have an economy primed to grow because of reduced taxes, less regulation, dynamic energy and trade reforms, you want to ensure maximum access to capital.” Via Politico 

Dow Jones to see boost from interest rate cuts?

The stock market saw a strong rise in June as the Fed hinted at interest rates on the horizon. Dow traders are clearly hoping for further stimulus and monetary easing.

Donald Trump has echoed this sentiment. He claims the stock market would be “10,000 points higher ” if the Fed hadn’t raised rates. Trump has lashed out at Fed chairman Jerome Powell and criticized his policy.

Trump’s attempt to stack the Fed with friendly candidates is a bid to influence the Fed’s interest rate policy. As economist Kathleen Bostjancic explains:

“It seems like both are going to be in favor of lower rates, and sooner rather than later. They are much more dovish, and obviously that’s what President Trump wants.”

It remains to be seen whether the Senate will accept Trump’s nominees. The president’s previous picks have been rejected or faced such intense scrutiny they backed out. For now, the Dow Jones Industrial Average is seeing a small bump as the hopes of interest rate cuts grows.

Click here for a real-time Dow Jones Industrial Average (DJIA) price chart.