Trump: How Good is Mario Draghi’s English?
Trump: How Good is Mario Draghi’s English?
Our headline is facetious but President Donald Trump ratcheted up the war of rhetoric with Federal Reserve Board chairman Jerome Powell. The president has never shied away from criticizing the Fed’s policy, and lately he has demanded the Fed cut rates by one percentage point. Trump has claimed he could remove Powell, though the legality of this is suspect.
Last week, the president compared him unfavorably with European Central Bank President Mario Draghi, and reiterated his view that the Fed is hurting the U.S. economy by allowing the dollar to get too strong. “We should have Draghi instead of our Fed person,” Mr. Trump said in an interview Wednesday with Fox Business Network. “Mr. Powell “is not doing a good job….He has to lower interest rates for us to compete with China.”
My view is that the uncertainty that this creates isn’t particularly good for stocks. The Fed was created to be independent. Perhaps the president should have selected his nomination for chairman more carefully.
In a speech Tuesday, Powell pushed back, sort of, citing the central bank’s decades long independence. But then he noted the Fed might nevertheless cut interest rates soon. Well, OK. Powell’s in the uncomfortable position of possibly having to cut rates for economic reasons and not in response to Trump’s calls. But in the end, it might look to some as if he’s caving.
Just as importantly, the Fed chairman did say that the amount of tariffs in place against China and other countries “is not large enough to represent, itself, a major threat to the economy.” The Fed is watching, Powell said for signs of “a loss of confidence or financial market reaction.”
Separately, U.S. economic growth was clocked at a 3.1% annual rate in the first three months of the year, the Commerce Department said Thursday, stronger than the 2.2% rate in the fourth quarter of last year. Sectors of the economy tied to trade, manufacturing and housing appear to be struggling with uncertainties related in part to overseas trade tensions. Slowing global growth and weak inflation are also clouding the outlook for the rest of the year.
The CME Fed futures market, a pretty accurate indicator of where rates are going, continues to place a 100% probability of a cut at the next FOMC meeting July 31 and another in September. A Fed cut during the summer would be relatively unusual, but that’s what investors see.
The world economy is slowing down but inflation isn’t threatening and hasn’t yet sustainably approached the Fed’s 2% target.
The yield on the U.S. Treasury 10-year bond fell to 2.01% from 2.06% one week ago.
Upcoming: 7/30-31 - FOMC meeting.
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