A $200 billion here, a $200 billion there. Rate hike?

A $200 billion here, a $200 billion there. Rate hike?

Hey what’s a measly little $200 billion?

Trump wants $200 billion for his war on Iran. Didn’t Trump also say that we have won the war? “I think the war is very complete, pretty much — they have no navy, no communications, they’ve got no air force, their missiles are down to a scatter, their drones are being blown up all over the place including their manufacturing of drones — if you look, they have nothing left.”  Well if his war is won, I guess he just needs the $200 billion to replace the munitions used and buy more jet fuel. Right?

Well lots of luck getting the congress to authorize that. I don’t know if he can even get that through the House but probably would have more luck in the Senate. But Senate Majority Leader John Thune (R., S.D.) said it “remains to be seen” whether the funding package would pass in the Senate. Sen. Ron Johnson (R., Wis.) said he would support more funding for the war, “but I’ll try and insist we pay for it.” I guess that means he would want an offset so as not to add to the deficit. But “The problem with supplementals is if you vote for it, you’re basically authorizing the war” said Sen. Tammy Duckworth (D., Ill.), an Army veteran who lost both legs in the Iraq war in 2004.

“It takes money to kill bad guys” said Defense Secretary Pete Hegseth. “So we are going back to Congress and our folks there to ensure that we are properly funded for what’s been done, for what we may have to do in the future.” No doubt the US is burning through munitions for thousands of missions. U.S. Central Command said it had struck 7,800 targets, damaged or destroyed more than 120 Iranian vessels and flown 8,000 combat flights.

Of course, Chuck Schumer is opposed: “Let’s be clear: If Trump wants $200 billion, that means he believes we might be in a war with Iran for a very, very long time.” Even the republicans in the House are not entirely on board. Georgia’s Rep. Andrew Clyde usually a MAGA cheerleader said “I need to know what it’s for and it needs to be justified.” All this translates to bad news for the administration. The democrats will all vote no. Thomas Massie will be one republican in the House to vote no. And if the MAGA-types aren’t doing their usual cheerleading, then it is a distinct possibility that the president won’t get his $200 billion.

Rate hike, hold or decrease?

Fed governor Michelle Bowman says that she has penciled in the possibility of two rate cuts in 2026. She may be by herself in that prediction. Chairman Powell says that any rate cut will depend on what happens to inflation and that seems to be the sentiment for most of the Open Market Committee. Of course, Trump is hoping that his nominee Kevin Warsh will soon replace Powell as chairman. But there is no guarantee that even Warsh will support a rate cut after confirmation. Market yields on longer term securities are edging up in anticipation of more inflation. Foreign central banks in Canada, Japan and Australia are moving toward raising their rates. Regardless of what Trump wants, the Fed has shown that what Trump wants Trump may not get. US markets are actually anticipating no rate increase the rest of this year and problematic about increases for the first of 2027. The Fed targets the price index of personal-consumption expenditures which shows inflation at 2.8% in January and core inflation which excludes food and energy, at 3.1%. Recall their target inflation is 2 percent. What will be the impact of Trump’s tariffs and now the price of energy because of the war? Seems to me that if Trump really wants a rate decrease then he could help things by rolling back his tariffs to zero. Lots of luck with that. What happens to the price indices that include food and energy because that is where most of the price increases will be? What will the Fed do then? Raise rates? BTW, diesel prices have jumped more than $2 a gallon? It now costs me $200 a tank for my Ford F-250. When my other half and I went to a local restaurant, the prices were $5 per entrée more than they were last week. Sorry but her chicken tenders are not worth $21 and my bowl of soup and Caesar salad were not worth $19. We won’t go back because eating out for us is price elastic.

I still wonder if Powell will leave the Board once his term as chairman expires. I wouldn’t. I’d stay just to tick Trump off after all the vindictive that Trump has leveled at him. Staying on would deny Trump another appointment to the Fed. Currently, there are Bowman, Waller and soon Warsh if ever the silly “Justice” Department harassment goes away. Another appointment will have Trump’s nominees constituting four of the seven seats at the Board. Some think that this will enable Trump to have his way with the Fed for the remainder of his term. But that is doubtful. Even now Waller and Bowman are not sure things for the president since they were passed over for the chairmanship. If Trump loses his fight to fire Lisa Cook, the other members will feel freer to continue to express their independence and likely will do it. Of course Trump knows this. Remember he said that in the interviews he is told what he wants to hear but once confirmed by the Senate the nominees mostly go their own way.