The election results are not even 30 days old, but President-Elect Donald Trump and his transition team already have named nominations for key cabinet positions. When it comes to the economy, two of the most influential positions in the nation are the Secretaries of the Treasury and of Commerce — even if being chairman of the Federal Reserve is the most public.
Donald Trump’s nominee as Treasury Secretary is officially Steven Mnuchin, and his nominee for Commerce Secretary is Wilbur Ross. Some outsiders and financial market critics may have some issues with these appointments. The business community, economists and investors are more likely to be pleased with, or at least neutral about, these appointments. And there is the reminder that all appointments of this scale have to actually be approved.
One key issue is that Treasury and Commerce have many overlapping areas. They may not control interest rates like the Federal Reserve, but they can have an influence over just about every other aspect of the economy. This boils down to the flow of capital, tax policies, international and domestic trade, financial regulations and too many more to address in a short time. One thing that is quite different today is that pundits actually are talking about a return of more aggressive growth. Both Mnuchin and Ross have keyed on numerous points on this front for 2017 and beyond.
These appointments are quite different from the current regime. Mnuchin will replace Secretary Jacob Lew as Treasury Secretary. Ross will replace Penny Pritzker as the Secretary of Commerce. Both current secretary positions were more recent appointments under President Obama, with Lew appointed in early 2013 and Pritzker in mid-2013.
Both Trump nominees were Trump loyalists throughout much of the campaign. Mnuchin was directly involved in fundraising, and he is just 53. Ross is 79 years old and was an advisor during the campaign, and he is one of the best known private equity investors out there who has invested billions in distressed assets.
Mnuchin helped Trump raise funds for the Trump campaign as the head of finance for the campaign. He is a former partner at Goldman Sachs, has run a hedge fund and is considered a Hollywood blockbuster movie producer. It was known during the campaign that Mnuchin had no real prior experience behind the scenes in politics. He also has donated to candidates of both parties.
Bloomberg even reported in August that Trump had told donors Mnuchin would be good at the job of stewarding the world’s biggest economy. Bloomberg also pointed out over the summer that Mnuchin has held jobs under Eddie Lampert of Sears and under George Soros, with the latter having invested hundreds of millions of dollars in Mnuchin’s Dune Capital Management in 2004. They also helped finance the movie “Avatar.”
Mnuchin also brought together billionaire funds from Soros and John Paulson to acquire IndyMac out of bankruptcy in the financial crisis, renaming it OneWest and turning it back into a profitable outfit in mortgages, which they then sold for more than $3 billion in 2015 to CIT Group.
The New York Times said ahead of the appointment that Mnuchin is an outsider to public policy. The paper also said that Hank Paulson, former Treasury Secretary and former Goldman Sachs alum, was complimentary of Mnuchin’s performance at Goldman Sachs and even went on to say that Mnuchin would be an excellent choice for Treasury Secretary.
Mnuchin told CNBC that he thinks the United States can get to a sustained 3% to 4% GDP growth. He talked about tax reform and that he and Ross have worked closely together during the campaign. He talked about getting corporate tax rates down to 15% and bringing back cash. Mnuchin later told Fox Business that the repatriation would be hundreds of billions, if not trillions, in overseas money coming back into the United States.
Mnuchin said early on Wednesday that interest rates have come up and that makes sense, but he also noted that interest rates are likely to remain low for the next couple of years. One likely change is that the average Treasury maturity is likely to extend further out while rates are low.
One more key issue to consider is what Mnuchin said about tax rates — that the wealthy may get lower nominal tax rates, but the deduction limits would offset much of that to where the would be no absolute tax cut. While that is what was said by Mnuchin, it seems to be break away from what has been communicated during and after the campaign by Donald Trump and his team. That means we will all have to wait and see what actually comes out as a formal proposal once everyone is in session in 2017.