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Authored by Kevin Muir via The Macro Tourist blog,

Can’t deny that it’s been a wild few weeks in the financial markets.

Although it seems like an eternity, it’s only been ten trading days since U.S. Secretary of the Treasury, Steve Mnuchin, called a special meeting of the President’s Working Group on Financial Markets to ensure that banks had “ample liquidity”. It was Sunday night, a day before Christmas Eve, and the stock market had been falling precipitously for the previous few weeks. Mnuchin was under a lot of pressure from Trump to fix the problem and he figured he needed to do something.

So Mncuchin interrupted his Cabo San Lucas vacation to calm markets. After all, nothing exudes confidence more than making a few phone calls from your Mexican resort to the top six bank CEOs to confirm they don’t have a problem with liquidity. Especially when absolutely no one was ever claiming liquidity was an issue.

Now many blame Mnuchin’s brain-dead move for the massive sell-off on Christmas Eve. After all, the day before Christmas is usually a slow trading day with markets closing at 1pm as traders rush off to do their last-minute shopping.

Yet instead of a slow listless trading day, it was an absolute bloodbath reminiscent of a Game of Thrones episode. The S&P 500 future closed down 71 handles – almost 3%!

Was it Mnuchin’s fault? Who knows? I don’t think he helped.

But what many overlook is that stock market futures were initially up on his stunt. Sunday night after his announcement, spooz were trading up more than 20 points.

Granted, by the time the cash market opened at 930am the stock market had given up those gains, but if we look at the intraday chart, after an initial dip right after the open, the market looked like it might bottom. By 1030am we were approaching unchanged on the day, and then it happened.

There was a monster wave of selling that took the S&P 500 down a sickening 3% in the last three hours of trading. It was illiquid and made little sense for traders to demand liquidity on the day before Christmas, yet they were spooked and took a “shoot first ask questions later” attitude.

And what drove this panic?

Look at the timestamp on Donald Trump’s twitter post:

I don’t want to bother discussing whether Trump is correct in his assessment of the Federal Reserve’s policies. Who cares? It is what it is. I don’t want to end up one of those old men yelling at clouds.

I am only interested in what it means for the market, and it is my firm opinion that Trump’s ongoing feud with the Federal Reserve contributed to a collapse in confidence that caused the financial market sell-off of December.

Fed watchers anonymous

I was out for dinner with a good buddy last night and he remarked that I had become one of those Fed watchers that I used to make fun of. You know the type – desperately trying to explain every tick through slight nuanced changes in Fed officials’ language.

Yet my response was that the Fed was all that mattered lately. I would be foolish to ignore the 10%+ swings due to the comments from both the Federal Reserve and the President.

And I contend that predicting Powell’s moves in the upcoming quarters will mean more than trying to come up with a fundamental fair value for financial assets.

I will quote my favourite macro trader Stanley Druckenmiller when it comes to what moves stock markets (a Macro Ops post that’s actually from a 1988 Barron’s interview)

The major thing we look at is liquidity, meaning as a combination of an economic overview. Contrary to what a lot of the financial press has stated, looking at the great bull markets of this century, the best environment for stocks is a very dull, slow economy that the Federal Reserve is trying to get going. Once an economy reaches a certain level of acceleration. the Fed is no longer with you. The Fed, instead of trying to get the economy moving, reverts to acting like the central bankers they are and starts worrying about inflation and things getting too hot. So it tries to cool things off… shrinking liquidity… [While at the same time] The corporations start having to build inventory, which again takes money out of the financial assets… finally, if things get really heated, companies start engaging in capital spending… All three of these things, tend to shrink the overall money available for investing in stocks and stock prices go down.

Earnings don’t move the overall market; it’s the Federal Reserve Board… focus on the central banks and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.

Although I would love to ignore Jay Powell and his flip-flopping remarks, the reality is that after Trump’s “Fed has no touch and can’t putt” comment, Powell caved and caused the following rally:

So yeah, I have become a Fed-watcher as the market is trading more based on Powell’s comments than any sort of fundamental metric.

Stepping back

What changed that made the Federal Reserve so important? After all, Jay Powell has been the FOMC chair since November 2017 and you could argue that policy has not been altered.

Under Powell’s tenure, the Federal Reserve has consistently raised rates and wound down the balance sheet. Powell has been steadfast in his execution of this tightening campaign.

Yet even the most ardent hard-money advocates will admit that eventually, money will be too tight. At some point the Federal Reserve will have tightened too far.

Here is where the heart of the problem lies. What is that level? And to determine that level, should the Federal Reserve take into account market-based-signals or should they focus more on traditional economic indicators?

And to make matters even more complicated, is the Federal Reserve truly worried about inflation, or are they more concerned about a growing financial asset bubble?

Getting into Jay Powell and the rest of the FOMC Board’s heads to understand their reaction function as the economy evolves will be paramount to forecasting financial asset returns in the coming quarters and years.

So without further ado, here is my interpretation of what Powell is trying to accomplish and what that means for the markets.

Although the Federal Reserve mouths words about being concerned about inflation, the reality is that they have been consistently undershooting their target, and it’s been over a decade since Core PCE inflation has been above 2%.

Is the Federal Reserve worried about inflation? Do they really think that’s the biggest risk out there?

I call bullshit on that one. Don’t forget that Bernanke is “100% confident that he can control inflation”. I know Powell is a different kind of Fed chair, but the confidence within the Federal Reserve runs deep in regard to their ability to quash inflation if it rears its ugly head.

We haven’t had a real inflation problem in decades. The idea that Powell lies up at night worrying about inflation is laughable.

But I think Powell has a demon that haunts him. Jay was nominated to the FOMC Board by President Obama in December 2011. Since then, he has repeatedly cautioned about quantitative easing and other extraordinary monetary stimulus measures.

I believe Powell understands all too well the massive cost of the Great Financial Crisis in both economic and human terms, and his biggest worry is not inflation taking off, but instead the expansion of a massive financial asset bubble that, when eventually pricked, will have even greater repercussions.

My friend Chase Taylor at Pinecone Macro did some great analysis digging up Powell’s quotes over the past year which highlight this reality (give Chase a follow on twitter, or better yet – check out his website):

My favourite quote? “It is worth noting that the last two business cycles did not end with high inflation. They ended with financial instability…”

Powell is not worried about inflation anymore than Bernanke was worried about inflation.

Yet he is much different than Easy-Ben.

Whereas Bernanke was concerned about using monetary stimulus to encourage wealth-affect spending, Powell views these distortions as ultimately counterproductive.

So Ben wanted to provide a floor for financial assets – you know, the infamous Fed put, I think Powell is more interested in selling a call. He wants there to be a ceiling so that another bubble isn’t created that ultimately pops and causes more economic pain.

Trump has been haranguing the Fed for quite some time, yet until recently, Powell has been impervious to the comments. Many strategists have shouted about inflation not being a problem and wondered why the Fed seemed so intent on raising rates. Yet in a private moment, I am sure Powell would agree with them. He isn’t worried about inflation. But the possibility of another massive financial bubble scares the shit out of him.

When you think about his recent actions through this lens, it makes so much more sense.

Why did he make the October 3rd comment that rates “were a long way from neutral?” Have a look at this chart of the S&P 500 and CSI BarCap high-yield spread going into that day:

Financial conditions were loose and showing absolutely zero signs of being sensitive to his tightenings. Powell was probably rightfully scared that the bubble would take off. Therefore he leaned more hawkish than he probably should have if he was simply setting rates purely from economic indicators.

But then what happened? From there, the market decided that Powell had just tightened into a recession and quickly priced it all in within the space of a month.

Plus it was made worse by Trump nattering about rising rates. It made Powell’s job of acknowledging the market signals all the more difficult.

So it appeared the Fed was tone deaf and intent on raising rate regardless of what happened to the financial markets.

It all fed onto itself in a crazy self-reinforcing cycle culminating in the infamous Christmas Eve sell-off.

Going forward

I will not make any judgment about what Powell should do, but will assert that Friday’s statement where he caved to the market forces was unproductive. Assuming that I am correct about his biggest worry being market bubbles, he has now set himself back. Stocks are screaming higher. Investors are once again chasing high-yield and other risky forms of debt.

It won’t be long until he will be forced back into trying to talk the markets back down.

Inflation isn’t his worry – market bubbles are his over-riding concern.

Remember back a half-dozen years ago when all the hedgies were bearish and David Tepper came out and said something to the effect of; “if the economy weakens, then the Fed will ease and stocks go up. If the economy strengthens, then stocks will go up because earnings will be rising. Therefore I am buying.”

Well, I think it’s almost the exact opposite situation today. If the economy strengthens then Powell will hike and stocks will fall from the liquidity withdrawal. If the economy weakens, then Powell has shown he is loathe to come to the market’s rescue and he will be slow to lower rates.

I don’t think you need to overthink this. The Fed has tightened into either a slowdown, or a recession. The market sniffed it out, but the Fed ignored the signals for a bit and made the sell-off worse. Now the market is in the process of correcting that overreaction by rallying.

But don’t forget that Powell has absolutely no stomach for frothy financial markets, so beware getting too excited about the Fed’s recent dovish talk. This is not Yellen or Bernanke’s Fed. Powell has a different set of beliefs, and although he has succumbed to market pressures for the moment, it won’t take much for the old tone-deaf Powell to return.

I will leave you with a quote from Stephen Roach writing In defense of Jerome Powell’s courageous Fed. Although I am sure Stephen would most likely be disappointed by Powell’s recent change-of-heart, I think Powell’s waffling is only for the moment, and that Roach’s analysis is ultimately where Powell wants to head in the long run:

Predictably, the current equity market rout has left many aghast that the Fed would dare continue its current normalisation campaign. That criticism is ill-founded.

It’s not that the Fed is simply replenishing its arsenal for the next downturn. The subtext of normalisation is that economic fundamentals, not market-friendly monetary policy, will finally determine asset values.

The Fed, it is to be hoped, is finally coming clean on the perils of asset-dependent growth and the long string of financial bubbles that has done great damage to the US economy over the past 20 years.

Just as Paul Volcker had the courage to tackle the Great Inflation, Jerome Powell may well be remembered for taking an equally courageous stand against the insidious perils of the Asset Economy. It is great to be a fan of the Fed again.

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Iran said on Wednesday it had arrested, and was holding U.S. Navy veteran Michael R. White, 46, of California at a prison in the country, making him the first American known to be detained under President Donald Trump’s administration according to AP.

While relations between the US and Iran had entered a holding pattern in recent months as Trump shifted his attention to the border wall situation, White’s detention adds new pressure to the rising tension between Iran and the U.S., which under Trump has escalated, culminating with the US pulling out of Obama’s nuclear deal with world powers.

While the circumstances of White’s detention remain unclear, Iran has in the past used its detention of Westerners and dual nationals as leverage in negotiations. The semi-official Tasnim news agency, close to the country’s paramilitary Revolutionary Guard, reported the confirmation citing Foreign Ministry spokesman Bahram Ghasemi.

“An American citizen was arrested in the city of Mashhad some time ago and his case was conveyed to the U.S administration on the first days” of his incarceration, Ghasemi was quoted as saying.

White’s mother was quoted by the NYT saying she learned three weeks ago that her son is alive and being held at an Iranian prison. His arrest was first reported by an online news service by Iranian expatriates who interviewed a former Iranian prisoner who said he met White at Vakilabad Prison in Mashhad in October.

White’s mother, Joanne White, had told the Times that her 46-year-old son, who lives in Imperial Beach, California, went to Iran to see his girlfriend and had booked a July 27 flight back home to San Diego via the United Arab Emirates. She filed a missing person report with the State Department after he did not board the flight. She added that he had been undergoing treatment for a neck tumor and has asthma. She said her son had visited Iran “five or six times” previously.

White’s incarceration was first reported on January 7 by Iran Wire, an online news service run by Iranian expatriates. Iran Wire’s report was based on an interview with a former Iranian prisoner who was quoted as saying he had met White at Vakilabad Prison in the city of Mashhad in October. The prisoner, identified as Irvar Farhadi, was briefly held at the same facility as White in Mashhad, Iran Wire reported according to Radio Free Europe.

Farhadi told Iran Wire that White had met an Iranian woman online and traveled to Iran several times to see her.

On his third visit, when White and his girlfriend were about to fly to Turkey, he was arrested at Hasheminejad Airport in Mashhad, Farhadi said.

White is not alone as there are four other known American citizens being held in Iran.

Iranian-American Siamak Namazi and his 82-year-old father Baquer, a former UNICEF representative who served as governor of Iran’s oil-rich Khuzestan province under the U.S.-backed shah, are both serving 10-year sentences on espionage charges. Iranian-American art dealer Karan Vafadari and his Iranian wife, Afarin Neyssari, received 27-year and 16-year prison sentences, respectively. Chinese-American graduate student Xiyue Wang was sentenced to 10 years in prison for allegedly “infiltrating” the country while doing doctoral research on Iran’s Qajar dynasty.

Iranian-American Robin Shahini was released on bail in 2017 after staging a hunger strike while serving an 18-year prison sentence for “collaboration with a hostile government.” Shahini is believed to still be in Iran. Also in an Iranian prison is Nizar Zakka, a U.S. permanent resident from Lebanon who advocated for internet freedom and has done work for the U.S. government. He was sentenced to 10 years on espionage-related charges. Former FBI agent Robert Levinson, who vanished in Iran in 2007 while on an unauthorized CIA mission, remains missing as well. Iran says that Levinson is not in the country and that it has no further information about him, though his family holds Tehran responsible for his disappearance. Tehran now says it has no information about him.

Controversially, in January 2016, Iran released four Americans as part of a prisoners swap, including Jason Rezaian, The Washington Post’s Tehran bureau chief, Saeed Abedini, a pastor from Idaho, and Amir Hekmati, a former Marine from Flint, Michigan. In exchange, the United States released several Iranians held on sanctions violations. Additionally, the Obama administration secretly funneled approximately $56 billion to Iran to secure the transfer.

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Authored by Greg Hunter’s USAWatchdog.com,

Financial writer John Rubino says no matter what country, the global debt has exploded to record highs, and it’s going to go even higher in the coming years.

Rubino contends, “Government debt is going to soar going forward no matter what…”

“Whether we have three more years of growth or a recession next year, we are going to see massive new deficits and massive increases in government debt all over the world. This is coming at a time when we have already hit record levels of debt and blown right through previous record levels. The last crisis, that almost ended the global financial system, was debt driven. The next one is going to be that much, much more serious because we basically doubled the amount of debt that’s out there since 2005 and 2006.”

On the political front, Rubino says, “The idea that things get more extreme from here is not that out of the ordinary and not that hard to believe…”

“We are not just going to see gridlock here in the U.S., we are going to see chaos. That means of the things that should be gotten done, very few of them will be…

Political chaos is good for precious metals . . . both metals are way undervalued.”

Few would disagree, that at some point, the financial system is going to explode.

Rubino says, “Let’s look at what happens when this finally blows up…”

“The pressure is going to be on currencies when the financial system starts to spin out of control next time. In other words, people are going to see the amount of debt we are taking on, see the amount of currency we are creating to service all this debt, and will wonder what that does to the value of the currencies that are being aggressively created. They will lose faith in those currencies. What is unique about this time, countries have screwed up their currencies since the beginning of time…but this time around, they are all doing it. Every major country in the world has a printing press, which is to say an unlimited credit card. They are maxing out that credit card…and they are doing it simultaneously.”

In closing Rubino says,

“All we have left is to wipe the slate clean and say, you know what, this thing did not work. It’s a 60 year experiment that turned out to have a fatal flaw, which is you can’t hand a printing press to a government.”

Join Greg Hunter as he goes One-on-One with John Rubino, author of “The Money Bubble” and creator of DollarCollapse.com.

To Donate to USAWatchdog.com Click Here

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While US equity markets popped modestly on the dovish-er than expected Fed minutes, they have since given that back and retraced back close to unchanged along with bonds, bullion, and the greenback…

A long way to go to the close though.

 

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As a reminder, the FOMC raised the fed funds rate target by 25bps in December, in line with the analyst median forecast.

The central bank also narrowed the trajectory of rate hikes going forward, now envisaging two hikes in 2019, and one in 2020 (previously it had seen three hikes in 2019 and one in 2020). Crucially, the FOMC lowered its estimate of the neutral rate (to 2.8% from 3.0%), and additionally, the central bank softened its guidance on future rate hikes, saying that “some further gradual increases” to rates (versus the previous “further gradual increases”), even as the market continues to expect that the Fed’s rate hike cycle is now over and even expects a rate cut in 2020. In terms of risks to the outlook, the Fed continues to see these as “roughly balanced”.

But the market is entirely rejecting The Fed’s messaging and today’s Minutes may hold some color for just how hawkish or dovish The Fed really is…

And, since The Fed hiked rates in December, stock markets have turmoiled back to unchanged. However, one look at the chart below shows that it was in fact only stocks that were chaotic – the trend higher in bonds and bullion (and lower in the dollar) was relatively smooth…

And at the same time as stocks have yo-yo’d so has the market’s expectations for just how dovish The Fed will be this year…

In fact, the last week has seen almost all dovishness priced OUT from 2019.

And so all eyes are on the Minutes to see if the “not dovish enough” sentiment within the statement was watered down from a more (or less) dovish perspective in the actual meetings…

It seems the dovishness was deeper in the meeting:

• *FED OFFICIALS SAW EXTENT, TIMING OF FUTURE HIKES AS LESS CLEAR

• *MANY OFFICIALS FELT FED COULD BE PATIENT ON FURTHER RATE HIKES

• *FED: A FEW OFFICIALS FAVORED NO RATE INCREASE AT DEC. MEETING

• *FED: SOME OFFICIALS NOTED DOWNSIDE RISKS MAY HAVE INCREASED

In other words, the Minutes revealed that the Fed took a more dovish approach to further rate increases than  the statement indicated.

“Many participants expressed the view that, especially in an environment of muted inflation pressures, the committee could afford to be patient about further policy firming,’’

And some of the key highlights:

On The Fed’s market-dependency:

Asset prices were volatile in recent weeks, reportedly reflecting a pullback from risk-taking by investors. In part, the deterioration in risk sentiment appeared to stem importantly from uncertainty about the state of trade negotiations between China and the United States. In addition, investors pointed to concerns about the global growth outlook, the unsettled state of Brexit negotiations, and uncertainties about the political situation in Europe.    

On the specifics of the risks facing the U.S.:

“Participants discussed five distinct downside risks to the outlook, including: a sharper-than-expected decline in global growth; a faster fading of fiscal stimulus; heightened trade tensions; further tightening of financial conditions; and a greater-than-expected negative impact from monetary policy tightening so far.”

On the neutral rate :

“With an increase in the target range at this meeting, the federal funds rate would be at or close to the lower end of the range of estimates of the longer-run neutral interest rate, and participants expressed that recent developments, including the volatility in financial markets and the increased concerns about global growth, made the appropriate extent and timing of future policy. Against this backdrop many participants expressed the view that, especially in an environment of muted inflation pressures, the Committee could afford to be patient about further policy firming.”

This new messaging fits with Powell who has already pivoted since the meeting (alongside his pals Yellen and Bernanke) to reassure markets that The Powell Put is struck almost as high as the Yellen Put.

*  *  *

Full Minutes Below…

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According to the latest Reuters meter of Fed “doves and hawks”, the Atlanta Fed’s Bostic, Boston Fed’s Rosengren and Chicago Fed president Charles Evans are all Hawks and, at worst, centrists. None of them is seen as a dove, per se.

And yet the trio of Fed “hawks” were scrambling over each other who could be more dovish today during their various speeches, confirming that the Fed has indeed undergone a seachange in sentiment, from being starkly hawkish as of the December FOMC meeting just three weeks ago, to uber dovish following Powell’s dramatic retreat last Friday.

The non-voting in 2019 Bostic was first, saying the Fed should be cautious about making additional interest rate hikes because rates are now close to neutral and businesses are uncertain about the outlook: “My view is that a patient approach to monetary policy adjustments in the coming year is fully warranted in light of the uncertainties about the state of the economy and about what level of policy rates is consistent with a neutral stance.”

Speaking at the Chattanooga Chamber of Commerce, Bostic said that “all the available evidence at the moment points to caution regarding firms’ approach to expansion’’ and added that “as long as that caution exists, I suspect it will act as a natural governor, limiting inflationary forces without the need for a muscular stance of policy.“

He continued his cautious commentary, saying that “grassroots intelligence from Main Street and messages from Wall Street indicate heightened uncertainty and concern about the economy’’ and added that “worries over tariffs and trade have dominated the conversations about the outlook and are present in the survey evidence we collect.”

He also noted his concern over potential escalation of trade wars, saying that “while businesses appear to have absorbed the initial rounds of tariffs, should tariff rates increase from here or encompass a broader set of goods, my contacts have said this would likely create significant challenges.”

Finally touching on the market, Bostic said that he views “recent market turmoil as not the cause, but a symptom of the various concerns and uncertainties surrounding the outlook” including “slowing global growth, uncertain trade policy, worries over the trajectory of growth domestically, and concern regarding the expected stance of monetary policy.”

But the most notable part of Bostic speech came when a reporter asked if he was saying that the next interest-rate move could be an increase or a cut, Bostic responded “yes” explaining that he is “open to a rate cut” if downside risks all come to bear and noting that “we need to signal we are not locked into a particular trajectory for policy” while adding that “If things evolve in ways that suggest that the downside risks all come to bear at the same time and we start to see significant weakness, I would be open to seeing our policy response to try to mitigate the negative aspects of that.”

“I am comfortable hanging out and seeing if there is evidence that monetary policy is accommodative.”

Bostic’ comment led to a sharp drop in the US Dollar while the euro reached its highest level against the greenback since October.

A dovish Bostic was followed by an equally dovish (and non-voting in 2019) Chicago Fed president Charles Evans, who said that while he still expects 3 rate hikes in 2019 if his forecasts are met, added that “we’re at a point where inflationary pressures are not evident” and claimed that “we do have capacity to not adjust rates for some period of time.”

Speaking with reporters after a speech in Riverwoods, Illinois, Evans said that “there’s no hurry in getting” Fed policy into restrictive territory and that “It could be that neutral is actually a little bit lower than what I just said, and if in fact we’re arguably at a lower range for neutral, that means we could be at neutral, and so if the inflation data didn’t move up.”

“It could be that some of these tensions resolve themselves and we don’t need to adjust policy” said Evans, leaving unsaid that the Fed may just launch QE4 if tensions don’t resolve themselves.

Still, there was some hawkish tones to his comments, such as his claims that “we’re sort of at this point where, economy continues to go like the December employment report, international situation works out pretty well, inflation goes a little above 2 percent, we clearly want to be at neutral, a little bit above”

“Given my outlook, given that I think things will play out reasonably well without unforeseen negative shocks, I think we want to go to slightly above neutral. That ends up in my book being the 3, 3.25 percent range. I did think in December that we could do that by the end of 2019… I think that timing is not at all important. My increases for 2020 were zero.”

The trio of hawks doves concluded when Boston Fed President Eric Rosengren said China’s economy faces a combination of problems and he worries it may slow more than anticipated, in effect pulling a “Yellen” who blamed the massive delay in rate hikes in 2016 on China.

“They have a lot of financial stability issues because there’s a lot of leverage in the Chinese economy, so that there’s much more risk that if the government doesn’t get it under control then it could be a much more severe problem, and obviously when you think about trade disruption, they’re the country most impacted by the concerns about trade war,” Rosengren said.

Commenting on the US markets, Rosengren said they ended 2018 on a sour note that raises a concern about the durability of the expansion, even though the market’s reaction clearly left him surprised, noting that “the economic data have not seemed to support the kind of financial market movements we’ve seen to date.”

Importantly, Rosengren said that levels of corporate debt were a concern, including credit extended through non-bank lenders, and said that while fiscal policy is still providing stimulus to U.S. economy, in the long run fiscal deficits are unsustainable and this will have to reverse as debt level becomes unsustainable. Eventually… just not yet.

There was an amusing moment when Rosengren said that it “catches his attention when short-term rate futures start pricing in rate cuts” although it wasn’t clear if he supported or was against such rate cut moves. Even so, he specified that the Fed is “mildly accommodative” now, and he is “perfectly content to stay there.”

The Boston Fed president said that he prefers to rely on adjustments of short-term rates, not to the balance sheet, which should remain “on autopilot”…  but wouldn’t rule out changing balance sheet policy in the event of a “dramatic slowdown.”

In other word, according to Rosengren, and the overall trio of doves, while nobody really knows what’s going on, a “dramatic slowdown” will be sufficient to not only end QT, but – drumroll – launch another round of QE (especially with the US deficit expected to rise will north of a trillion dollars this year, and someone will have to fund it).
 

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After reaffirming through leaked reports and his Press Secretary Sarah Huckabee Sanders that invoking a national emergency to bypass Congress and build his border wall is still very much an option, President Trump doubled down on this threat during a press conference on Wednesday ahead of negotiations with Congressional leaders (including Chuck Schumer and Nancy Pelosi). Vice President Mike Pence is also expected to travel to the Hill with Trump on Wednesday to meet with lawmakers.

Trump said he has the “absolute right” to declare a national emergency, something that both he and a Democratic Congressman have affirmed (though others have challenged these claims and Democratic leaders have threatened a legal challenge should be follow through). He added that his “threshold” for doing so would be “if I can make a deal” with Democrats that would include funding for the Wall. Meanwhile, the Dems on Wednesday said they’d be open to a compromise that includes funding for other border security measures.

Still, the Democratic leadership is standing by its demands that Trump reopen the government before negotiations continue.

“I think we might work a deal, and if we don’t we might go that route,” Trump told reporters during a bill signing in the Oval Office.

Trump’s comments come after he made his case to the nation during his first prime time address that the lack of security on the Southern border represents “a humanitarian crisis” caused by drug and human trafficking – though he stopped short of declaring a national emergency during the speech. 

Meanwhile, Pelosi on Wednesday accused Trump of “moving the goal posts” during the negotiations, causing the government shut down to drag on for longer than necessary.

“The White House seems to move the goal posts. Every time they come with a proposal, they walk away from it. Pretty soon these goals posts won’t even be in the stadium,” she said.

According to Bloomberg, Trump claimed during the press conference that he “didn’t want” this shutdown fight, but that “strong barriers” along the border are a necessity because “a drone isn’t going to stop a thousand people from running through.”

As anxieties for federal workers who are about to miss  paycheck continue to mount, Trump assured them that they are “all going to get the money” (though furloughed federal workers aren’t entitled to missed pay, though Congress has typically passed legislation to compensate them when shutdowns end).

As more Senate Republicans grow frustrated with the impasse, Trump said he’s “willing to keep the shutdown”, promising “whatever it takes” to achieve his goals – adding that he has tremendous Republican support.

If there’s anything to be taken from these comments, it’s that Trump hasn’t given up on a deal just yet – though he is apparently inching closer toward the ‘national emergency’ scenario.

 

 

 

 

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