Daily Comment (February 21, 2018)

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EST]

Looking for something to read?  In our travels we are often asked about books we recommend.  As a result, we have created The Reading List.  The list is a group of books, separated by category, that we believe are interesting and insightful.  Each book on the list has an associated review to help you decide if you want to read it.  We will be adding to the list over time.  Books marked with a “*” are ones we consider classics and come highly recommended.

FOMC meeting minutes: Today, we will be focused on the release of the January FOMC meeting minutes. The minutes are likely to shine light on how Fed officials expect the tax bill to affect the economy. There have been concerns that the tax bill could be inflationary; as a result, we expect the minutes to reflect the Fed’s willingness to speed up the pace of rate hikes as a counterweight to potential inflation. It is worth noting that this meeting took place prior to the release of the larger-than-expected wage growth data and government funding bill, therefore we suspect the market may have already priced in the possibility of faster rate hikes. That being said, we would not be surprised if the market overreacts to a very hawkish outlook.

North Korea meeting: Last night, Bloomberg reported that envoys representing Kim Jong-un ditched a secret meeting with Vice President Mike Pence. The meeting would have been the highest level of talks between the U.S. and North Korea regarding the latter’s nuclear program. The U.S. has long supported talks on the condition that North Korea gives up its nuclear ambitions, a requirement North Korea has consistently rebuked. It is unclear why North Korea decided to pull out of talks at the last minute, but it may have something to do with a report that South Korea and the U.S. agreed to hold joint military exercises later this year.[1] North Korea has long asserted that these drills represent rehearsals for a possible invasion. Although nothing came of this meeting, the fact that it was even scheduled is significant as it suggests that either the U.S. or North Korea blinked with regard to the aforementioned nuclear precondition. At the moment, it is not obvious which country actually did the blinking but we are somewhat more optimistic that a meeting could take place between the two rivaling countries.

Crypto-regulators: A report from Reuters suggested that U.S. lawmakers may consider imposing stricter federal oversight on cryptocurrencies. Although cryptocurrencies have long been considered a speculative bubble, regulators from around the world have expressed concerns that cryptocurrencies could pose security risks. Cryptocurrency exchanges have been criticized for aiding money launders and funding terrorist organizations. Currently, the Department of the Treasury is the primary overseer of cryptocurrency exchanges within the U.S. but its ability to crack down on the exchanges has been limited because the exchanges fall into a regulatory gray area. For example, tax evasion and securities fraud fall under the jurisdiction of the IRS and SEC. Any law proposed by Congress will likely provide clarification as to which agency has the ability to enforce regulations on the exchanges.

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[1] https://www.ft.com/content/b204f9f4-15e7-11e8-9376-4a6390addb44