At an investment seminar last week, former White House Communications Director Anthony Scaramucci predicted that President Donald Trump would pressure the Fed to raise rates four times over the next two years.
“If you think the Fed is independent from the political system in the United states you haven’t been paying close enough attention since the financial crisis — it’s obviously not,” Scaramucci said at Kase Learning’s Lessons from the Trenches investment seminar on Wednesday.
Scaramucci went on to explain, “Everywhere [Trump] went in the breadbasket of America … the litany of complaints to the presidential candidate at that time was, ‘What happened to my CD?’ And of course he would turn to them and say, ‘Well, that’s the Fed, the Fed is helping the rich people and it’s not helping the poor people and I’m gonna change that.’”
Scaramucci stated there would be “at least four” rate hikes. “Rates are gonna ratchet up faster than people anticipate because when [Trump] returns to the campaign trail, and he goes back into those areas, he wants their CDs to be between 2.5%, 3%, 4%.”
Trump could alternatively keep rates low to propel the stock market higher in anticipation of election 2020, but not without disregarding his base. However, at Kase Learning, Scaramucci vehemently stated Trump wanted rates to rise steadily: “I’m just telling you, I know the guy, I know his personality, I know the conversation he had with [Fed Chair] Jerome Powell.”
Scaramucci was a cofounder of the alternative investment firm Skybridge Capital and the successful Skybridge Alternatives Conferences (SALT), before leaving Skybridge in early 2017. He famously served as White House communications director for a rocky 10 days before being fired by Chief of Staff John Kelly. Kase Learning, founded by former hedge fund managers Whitney Tilson and Glenn Tongue, teaches a range of educational programs on investing and entrepreneurship, and invites veteran investors as guest speakers.
‘The struggle of our time’
The Federal Reserve began lowering interest rates to historical lows in 2008 in an aggressive effort to revive the struggling economy. Since the recession, rates have climbed from as low as 0.0% in late 2008 to 1.75% today.
Throughout his 40-minute talk, Scaramucci contended the low interest rate environment of the past 10 years has been “a very dangerous evolvement” since the global economic shock of 2008. “The Fed did … the easiest thing they could do, they massively stimulated through aggressive monetary policy,” he said.
“Working class families like the one I grew up in, real wages are down about 30%. My dad’s peak earnings was about $36,000, so if you took my dad’s 1975 wages and you priced them in 2015 40 years later, that family doesn’t have the same purchasing power that our family did. And that’s really the struggle of our time and why you’re seeing such political discourse right now.”
Scaramucci stated that across America, Trump’s constituency consists of middle-class and working class people who are not long stocks or assets — they by and large have a home with debt on it, and a savings account at their local bank ranging from $15,000 to $20,000, he said.
Rising rates will help value investors
When asked whether value investing still works, Scaramucci responded that rising rates and a normalized interest rate environment would allow for price discovery: “Value investing is going to be fantastic because when you return to a normal interest rate environment, you will start having winners and losers again on the stock market … and five years from now someone may be writing, ‘gee, do you think ETFs are dead?’”
‘I allowed my ego and pride to get in the way’
Scaramucci was surprisingly candid in admitting his pride and ego led him to join the White House: “Reince Priebus [Trump’s former chief of staff] did everything he could … to block me from the job the President promised me. My mistake was I allowed my ego and my pride to get in the way. [Priebus] won and I lost, I should have stayed at Skybridge. But I went down and had lunch with the President, he said ‘Man, you were right about [Trump’s former chief strategist, Steve Bannon, and Priebus] they suck, we gotta get rid of these guys. Why don’t you come in here and help me get rid of them?’ Pride and ego, I said yeah I definitely wanna do that.”
Despite the controversy surrounding his time in the White House, Scaramucci said he had moved on: “I was fired … but no whining, no bitterness, there’s no such thing as injustice because if you live in Manhattan, you live in New York, or in the United States, out of the 7.2 billion people in the world you’ve already won life’s lottery.”
Scaramucci ended his talk by assuring the seminar of Wall Street investors that the grass isn’t greener in Washington: “If you think working on Wall Street is rough, the worst person you’ll meet on Wall Street is the highest ethical standard in Washington.”
Fiona Stavrou works as a research analyst at a private family office in New York City.