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Trump talked about a lot of things in his speech to the joint session of Congress, such as the state of education and law enforcement in the U.S., as well as repealing Obamacare and pep talk about how awesome America and Americans are.

However, let’s zoom in on the relevant things he said about his fiscal policies and the U.S. economy, shall we?

So, what did he have to say? Well, here some of the key highlights from his speech.

1. Trump’s Tax Plans

Trump said that now is the time to “restart the engine of the American economy.” And he plans to do so by “making it easier for companies to do business in the United States, and much harder for companies to leave.”

And to make it easier for U.S. companies, Trump’s economic team “is developing historic tax reform that will reduce the tax rate on [U.S.] companies, so they can compete and thrive anywhere and with anyone.” Trump didn’t specify what the tax rate would be, but he did say last year that he plans to slash corporate taxes from 35% to 15%.

Of course, Trump being the populist that he is, also said that his tax reforms “will provide massive tax relief for the middle class.” No specifics, though.

2. Trump’s Infrastructure Program

Trump declared that “the time has come for a new program of national rebuilding.” And aside from the (in)famous Great Wall of Trump, Trump said that he will soon be asking Congress “to approve legislation that produces a $1 trillion investment in the infrastructure of the United States.” This new deal will be “financed through both public and private capital” and will supposedly create “millions of new jobs.”

Again, just broad strokes and no details, though.

3. Protectionism, full steam ahead!

With regard to trade, Trump lamented the yuuuge trade deficit, adding that “many other countries make [U.S. companies] pay very high tariffs and taxes, but when foreign companies ship their products into America, we charge them almost nothing.”

To rectify this perceived injustice, Trump first quoted Abraham Lincoln’s warning that the “abandonment of the protective policy by the American Government [will] produce want and ruin among [the American] people.” He then went on about his usual line about renegotiating trade deals and pushing for “fair trade” and not free trade.

And in keeping with Trump’s “America First” policy, he also emphasized that the core principles of his efforts would be “Buy American, and Hire American.” Moreover, Trump reaffirmed that he plans to “bring back millions of jobs.”

He also emphasized that his immigration policies, which have been described by many with mean-sounding adjectives, are actually an extension of his “America First” policy. Specifically, he criticized the current system of lower-skilled immigration, saying that it strains “the very public resources that our poorest citizens rely upon.”

Instead, Trump proposed that the U.S. should adopt the merit-based immigration system that “Canada, Australia and many others” currently have, which requires that “those seeking to enter a country ought to be able to support themselves financially.” Trump argued that such an immigration system “will save countless dollars, raise workers’ wages, and help struggling families, including immigrant families, enter the middle class.”

Final Thoughts

The Greenback was already climbing higher several hours before Trump began to speak. And that was due to higher rate expectations after Fed officials stoked expectations for a March rate hike.

USD Index: 15-Minute Chart
USD Index: 15-Minute Chart

To be more specific, odds for a March rate hike spiked close to 80% before settling at 62% later, according to the CME Group’s Fedwatch Tool.

March Rate Hike Odds Before Trump
March Rate Hike Odds Before Trump

As to what drove that spike, market analysts were pretty much unanimous in pointing to New York Fed President William Dudley’s comment in a CNN interview that “the case for monetary policy tightening has become a lot more compelling,” as well as San Francisco Federal President John Williams’ comment that “a rate increase is very much on the table for serious consideration at our March meeting” and Philadelphia Fed President Patrick Harker’s statement that he sees “three hikes as appropriate for 2017, assuming things stay on track.”

However, odds for a March rate hike plunged after Trump spoke, with odds falling from 62% to 35.4%.

March Rate Hike Odds After Trump
March Rate Hike Odds After Trump

This rather interesting reaction was very likely due to disappointment that Trump didn’t flesh out his fiscal policies. And as I noted in my review of the February FOMC meeting minutes, Fed officials hinted that they were wary of hiking further until Trump provides the details of his fiscal stimulus plans when Fed officials “cautioned against adjusting monetary policy in anticipation of policy proposals that might not be enacted or that, if enacted, might turn out to have different consequences for economic activity and inflation than currently anticipated.”

This drop-in rate hike expectations initially weighed down on the Greenback, although the Greenback already got hit earlier when market players took profits off the table ahead of Trump’s speech.

However, the Greenback climbed higher later, which some market analysts attributed to higher rate hike expectations. However, I don’t readily agree with that because rate hike odds got slashed, as I showed earlier.

Furthermore, if we directly take a look at the 30-Day Federal Funds Futures, we can see that the market is expecting the Fed Funds Rate to be at 0.7525% in March, which is just above the Fed’s target range of 0.50% to 0.75%. In other words, very low expectations for a rate hike.

30-Day Federal Funds Futures
30-Day Federal Funds Futures

Base metals rallied after Trump’s speech, though, which likely means that the market is optimistic about Trump’s fiscal stimulus plans, particularly his trillion-dollar infrastructure program, even though he didn’t really provide any details.

And this optimistic outlook on the U.S. economy also likely helped to sustain the Greenback’s rally.