Why The Next Fed Chair Will Launch Yield Curve Control

In a testament just how important to Trump it is for the market to keep going up - Trump is only the fourth President to visit Federal Reserve (FDR was the first in 1937 to attend the opening of the Fed building). Which is to be expected: after all Trump has given up all hope of cutting government spending (goodbye DOGE) so instead he is pushing the US economy and market into a terminal blow off top in hopes of growing the US out of the $37 trillion in debt it currently has. As for the state pretext that Trump is displeased with the Feds building renovation, consider this: the US government spends = $7.1 trillion, so the US government spending $2.6 billion for the Fed renovation, thats the equivalent of just 3 hours and 12 mins of the full year US spending budget.

Trumps unwillingness and/or inability to reduce government spending is why he needs Fed to cut (the simple math goes something like this: $1tn in interest payments stabilize if the funds rate 3%), and is why the next Fed governor likely to launch Yield Curve Control to control debt.

Tale of the tape, the YTD performance of bank stocks continue to soar (perhaps in anticipation of the massive liquidity flood that YCC will be): Europe 62%, UK 37%, China 29%, Japan 24%, US 17%. The reason for this outperformance is that banks are the best expression of 2025 flip from US to global fiscal excess. Banks will stay risk-on until bond yields rise to levels that trigger lower banks. While that hasnt happened yet...the bond vigilantes are set to pounce if 30-year yields in the UK rise above 5.6%, US 5.1%, Japan 3.2%; meanwhile interest costs are now up to 3% of UK GDP ($120bn), 4% of US GDP ($1tn), 4% of Japan GDP ($185bn).

Curiously, the one place where bond yields are down in the past 2 years is China, and during that period, China H-shares are quietly up 58%, besting ACWI SPX (40%), which also means that China is the only place where 60/40 is working vs US, UK, EU, Japan where aversion to bonds keeps asset allocators long stocks credit.

The biggest picture: its no surprise that Wall Street continues to favor Trumps pivot to lower US tariffs, taxes, rates and has pushed the SP up 9% YTD, besting Treasuries 3%, and catching up to International 22%. In contrast, Main Street is less adoring: Trump job approval back near April lows...as Trump bro billionaire stocks are up 71% since election, but Trump small-cap, rate-sensitive base stocks are down 1% on the year. Its also why that policy is in too-big-to-fail mode, and it will intervene to prevent up inflation (tariffs), down jobs (AI).