It's a looming conflict between two of America's most powerful institutions: the President and the Fed.

As President-Elect Donald Trump prepares to take office and begin his economy-boosting fiscal stimulus measures, Federal Reserve chairwoman Janet Yellen appears to be adopting an increasingly hawkish tone. The outcome may be that Trump’s fiscal fire is quickly doused by Yellen’s monetary hose.

Trump’s Fiscal Fire

Among other things, Trump campaigned on the promise of major economic stimulus, including a mix of tax cuts and increased infrastructure spending. Under the plan, lower taxes would boost cash for businesses and individuals alike, sparking the economy, while hundreds of billions of dollars would be spent on new bridges, roads, airports and railways. Easing regulations on business is also on the Trumponomics menu.

Since the election, U.S. stock markets have shown their optimism for this stimulus package with the DJIA gaining about 8% through December 22 in the first five weeks after Trump’s victory, which, according to the Wall Street Journal, “is the biggest surge following any U.S. presidential election in history.” Both the Dow and the S&P 500 have hit record highs since the election. (To read more, see: History Says Market’s Love For Trump Will Continue.)

Yellen’s Monetary Hose

However, all this optimism for fiscal stimulus may quickly dissipate if the Fed, following recent comments by Yellen, decides to hasten the pace of monetary tightening, at least according to some analysts at Goldman Sachs.

In a report published on Tuesday, the analysts argued that whereas only three months ago Yellen had indicated that the economy had “more room to run,” her tone at last week’s press conference had noticeably changed. She described the labor market as being “in the vicinity of maximum employment,” and that the U.S. had “the strongest job market in nearly a decade.”

While the analysts recognize that Yellen’s remarks were justified based on the drop in the unemployment rate from 5.0% in September to the current 4.6%, they noted that the prospect of Trump’s fiscal stimulus had given Yellen additional reason to be hawkish. When asked about fiscal stimulus in light of the current labor market, Yellen responded, “my predecessor and I called for fiscal stimulus when the unemployment rate was substantially higher than it is now.” In other words, Yellen was indicating that it’s too late for fiscal stimulus. (To read more, see: Fed Raises Rates For First Time In A Year, Takes Hawkish Tone.)

Too Late for Stimulus

According to the Goldman analysts, while stock’s have rallied on Trump’s fiscal policy plans, bond and foreign currency markets appear to have a better grasp on the headwinds pushing against potential economic growth. Specifically, the reality of slower growth rates in both productivity and the working age population, not to mention some of Trump’s own policy proposals concerning immigration and trade agreements, suggest that there is not much slack in the U.S. economy right now.

Consequently, any fiscal stimulus may fire up inflation more than GDP growth. And given that risk, the Fed may have no choice but to tighten. One of the Fed’s more hawkish policy makers, Jeffrey Lacker, warned last week that the Fed may be forced to hike interest rates more than three times next year. That may give Trump, who has criticized the Fed and Yellen on several occasions, one more reason to be dissatisfied with the U.S. central bank.

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