FLASH: President Trump is bringing the Fed into the US-China trade war.
Tuesday, President Trump called on the Fed to “match” what he said China will do to offset economic hardship being caused by tariffs.
“China will be pumping money into their system and reducing interest rates, as always, in order to make up for the business they are, and will be, losing,” the President said in a Tweet Tuesday.
“If the Federal Reserve ever did a ‘match,’ it would be game over, we win! In any event, China wants a deal!”
President Trump’s suggestion that the Fed could help the US counter China in the countries’ trade dispute builds on his efforts to guide the monetary policymakers to stimulate the US economy, even though growth is solid and unemployment is at a near 50 yr low.
The President’s comments will likely feed concerns in other countries over his willingness to break long-standing norms of international economic diplomacy.
The Us has long complained about other governments applying political pressure on central banks and argued that Fed policy is driven by domestic economic priorities rather than any international competition.
Fed officials raised interest rates 4X last year but have since signaled an extended pause as they wait for a tight labor market to lift inflation that has been/is too low.
While financial markets expect the Fed to cut interest rates in the next year, Chairman Powell et al have indicated they do not see a strong case for a move either way. They say that they will make moves independent of any political considerations. Even though their actions and lack there of has and is causing extreme volatility in the markets.
President Trump moved to reassure markets Tuesday, saying that the US has “a dialogue ongoing” with China. “I think it’s going to turn out extremely well,” President Trump told reporters as he departed the White House for a trip to Louisiana.
The US Trade Representative’s office Monday released a list of about $300-B worth of Chinese goods including children’s clothing, toys, mobile phones and laptops that President Trump has threatened to hit with a 25% tariff.
New York Fed President John Williams said Tuesday that the levies were already starting to push up US inflation and will have a greater impact as they rise, though the US economy is in a “good place” right now.
President Trump has repeatedly criticized the central bank, urging it to deliver a drastic rate cut and resume bond purchases in an 30 April Tweet. That was a reference to the Fed’s quantitative easing campaign in the aftermath of the financial crisis which was deeply unpopular at the time with many of President Trump’s fellow Republicans.
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