Those wondering how long President Trump would hold off before again violating the modern norm against public presidential criticism of Fed policymaking now have their answer: a month and a day.
The speed with which Trump returned to his Fed-bashing suggests it's a theme he intends to sustain — and could intensify, if the economy goes wobbly or he decides it’s politically useful heading into the midterms — despite pushback from his own economic advisers, investors and others who say it’s a dangerous ploy.
Trump told Reuters in a Monday interview that he is “not thrilled” with Federal Reserve Chairman Jerome Powell for hiking interest rates — the same language he used in a July 19 interview with CNBC. And he repeated his gripe that the Fed's decision-making is putting the United States at a disadvantage against foreign competitors just as Trump is trying to secure better trade terms with them.
“We’re negotiating very powerfully and strongly with other nations. We’re going to win. But during this period of time I should be given some help by the Fed. The other countries are accommodated,” he told Reuters.
Asked whether he believes in the central bank’s independence, Trump said, “I believe in the Fed is doing what’s good for the country.” Following Trump’s initial criticism of Powell in July, the White House issued a statement attempting to clarify that “of course” the president “respects the independence of the Fed” and that “he is not interfering with Fed policy decisions.” On Monday, it didn't bother.
Trump has proved the efficacy of this practice: He elicits howls of criticism the first time he steps past accepted limits on presidential behavior. The next time, it draws more muted responses. After news broke of Trump’s comments Monday, stocks pared some gains before closing higher and an already-sliding dollar fell to a new low for the day.
Economists and market watchers mostly agree that Trump’s jawboning won’t slow the Fed’s rate-hiking schedule. During his presidency, the central bank has already raised interest rates five times, three of which occurred under Powell’s predecessor, Janet Yellen. The Fed has signaled it intends to keep going — with two more hikes this year and three next — to keep a lid on inflation as the economy continues heating up. “The Fed is very strong. We don’t need to worry about the Fed being pushed around,” Ken Matheny of Macroeconomic Advisers tells me. “It will make decisions it feels are objectively justified in terms of maximum employment and price stability.”
But observers also say to maintain the confidence of investors at home and abroad, the Fed’s independence should be inviolate. “Words matter, and this is a direct attack from the president,” says Stephen Myrow of Beacon Policy Advisors. “Once you raise the question of the Fed's independence and we have to have the debate, that’s a problem.”
Trump’s own advisers have pressed the point with him repeatedly, my colleagues Heather Long and Damian Paletta write. That includes Treasury Secretary Steven Mnuchin, who “recently told reporters that he had personally spoken to Trump about the central bank and that the president respects the independence of the Federal Reserve.”
Mnuchin could only look on Friday when Trump previewed his latest Fed broadside for Republicans donors at a Hamptons fundraiser. Bloomberg reports that Trump complained to the crowd — which also included Commerce Secretary Wilbur Ross, White House Chief of Staff John Kelly, and senior White House aide Jared Kushner — that he expected Powell to be a cheap-money advocate.
That followed other private complaints Trump has lodged against Powell recently. Per The Wall Street Journal's Peter Nicholas and Nick Timiraos, “At his golf club in New Jersey two weeks ago, Mr. Trump made similar comments to chief executives who attended a dinner there, according to the person who attended. This person said Mr. Trump seemed to lament having picked Mr. Powell to run the Fed. This person also said the president said he had believed Mr. Powell wouldn’t be raising rates much. '“I’m depending on this guy and I hope he listens,” that was the tenor,' the attendee said.”
Powell, for his part, has insisted he's unbothered by political pressure. Asked about criticism from National Economic Council Director Larry Kudlow last month, Powell told Marketplace in a radio interview, “We have a long tradition here of conducting policy in a particular way, and that way is independent of all political concerns. We do our work in a strictly nonpolitical way, based on detailed analysis, which we put on the record transparently, and… we don’t take political considerations into account.” Powell will have a chance to underline the point, if he thinks that’s necessary, when he addresses the annual global central bank conference in Jackson Hole, Wyoming this Friday.
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— More from Trump: China, EU are currency manipulators. Reuters: "Trump said China was manipulating its yuan currency to make up for having to pay tariffs on imports imposed by Washington. 'I think China’s manipulating their currency, absolutely. And I think the euro is being manipulated also,' Trump said. 'What they’re doing is making up for the fact that they’re now paying ... hundreds of millions of dollars and in some cases billions of dollars into the United States Treasury. And so they’re being accommodated and I’m not. And I’ll still win.' Trump has frequently accused China of manipulating its currency, but his administration has so far declined to name China formally as a currency manipulator in a semi-annual report from the U.S. Treasury Department."
— 3 percent growth ahoy? Bloomberg News's Rich Miller and Sho Chandra: “The U.S. economy looks set to forge ahead as fresh reservoirs of domestic demand carry it past turbulence overseas, keeping the Federal Reserve on course for further interest-rate hikes. Households have more cash to spend than thought, thanks to newly discovered pools of savings and [Trump’s] big tax cuts. Firms are ramping up production and rebuilding inventories after running them down by the most since 2009. And government spending finally looks set to swell, after Congress opened the floodgates in March with a $1.3 trillion package. The result, some economists say: Growth in the second half of 2018 could clock in at 3 percent or more. While that would be slower than the second quarter’s 4.1 percent pace, it would be enough to make the entire year’s performance the best since 2005, when gross domestic product climbed 3.5 percent.”
— Bostic pledges to oppose hike that inverts the yield curve. Bloomberg's Steve Matthews: "Federal Reserve Bank of Atlanta President Raphael Bostic said prospects for an inversion in the Treasury yield curve, which is widely viewed as a signal of a possible recession, would prompt him to dissent against further interest-rate hikes. 'I pledge to you I will not vote for anything that will knowingly invert the curve and I am hopeful that as we move forward I won’t be faced with that,' Bostic said Monday in Kingsport, Tennessee, in response to an audience question. 'The market is going to do what the market does, and we have to pay attention and react.' Bostic, a voter this year on the rate-setting Federal Open Market Committee, said he continues to favor raising rates three times over the course of 2018, meaning one more hike before year end. That makes his outlook slightly more dovish than the median forecast of Fed officials, which in June projected four quarter-point moves for 2018."
— Bull market to reach milestone. The Associated Press's Bernard Condon: “The bull market in U.S. stocks is about to become the longest in history. If stocks don’t drop significantly by the close of trading Wednesday, the bull market that began in March 2009 will have lasted nine years, five months and 13 days, a record that few would have predicted when the market struggled to find its footing after a 50 percent plunge during the financial crisis. The long rally has added trillions of dollars to household wealth, helping the economy, and stands as a testament to the ability of large U.S. companies to squeeze out profits in tough times and confidence among investors as they shrugged off repeated crises and kept buying.”
— Trump edges toward major tariff escalation with China. WSJ's Bob Davis and Andrew Duehren: "The Trump administration is moving closer this week to levying tariffs on nearly half of Chinese imports despite broad opposition from U.S. business and the start of a fresh round of talks between the U.S. and China to settle the trade dispute. The twin administration initiatives—pursuing tariffs on $200 billion of Chinese goods while relaunching talks to scrap tariffs—underscore a split within the U.S. administration, with negotiators in the U.S. Treasury Department offering a carrot, while the office of the U.S. trade representative threatens with a stick, both with the approval of [Trump]... 'Trump is a deal guy,' said one person closely following the talks. Until the Chinese make a concrete offer, the person said, Mr. Trump will continue to encourage the dueling agencies about what action to take."
Trump to Reuters: No big expectations for China talks this week. "Trump said in an interview that he had 'no time frame' for ending the trade dispute with China, which threatens to impose tariffs on virtually all goods traded between the world’s two largest economies. 'I’m like them; I have a long horizon,' he added... Trump said Chinese negotiators would be arriving shortly, adding he did not 'anticipate much' from the mid-level discussions."
— Businesses seek tariff exclusions. The Washington Post David J. Lynch: “The Trump administration is moving forward this week with plans to impose tariffs on a wider array of Chinese imports even as it explores the possibility of a negotiated resolution of its deepening trade conflict with China. The U.S. Trade Representative’s office Monday began an extraordinary six days of public hearings on [Trump’s] plans to tax an additional $200 billion in Chinese products. The latest tariff proposals, along with earlier levies on $50 billion in Chinese imports, would mean that by next month roughly half of everything American businesses import from China would confront special taxes . . . At the USTR hearings, sporting goods manufacturers, candle makers, footwear companies, semiconductor producers and others will plead to be excluded from the next tariffs. More than 1,300 comments already have been filed in response to the president’s proposed action, most opposing the plan.”
— Turkey takes dispute to WTO. Reuters: “Turkey has initiated a dispute complaint with the World Trade Organisation against additional tariffs imposed by the United States on Turkish steel and aluminum imports, the WTO said on Monday . . . ‘Turkey has requested WTO dispute consultations with the United States concerning additional import duties imposed by the United States on steel and aluminum products,’ the WTO said in a statement on its website. Under dispute consultations, both sides have 60 days to seek a solution, then the issue can go to the WTO Dispute Settlement Body.”
- “AP sources: Prosecutors preparing charges against Cohen.” AP's Tom Hays.
- “Democrats ask if Bolton revealed any contacts with alleged Russian agent.” Bloomberg News's Billy House.
— Tesla doubts whipsaw investors. Bloomberg's Esha Dey: “Tesla Inc. staved off what was poised to be its longest losing streak in more than a month even as fresh doubts about Elon Musk’s effort to take the company private kept shares below Friday’s closing price for most of the day. The stock inched up just minutes before market close despite the growing chorus of disbelievers. JPMorgan Chase & Co. scrapped any modeling in its price target for the possibility that Musk will buy out some investors at $420 a share. JPMorgan analyst Ryan Brinkman, who rates Tesla the equivalent of a sell, said such a deal is 'potentially far from even being formally proposed.' The bearish analysis followed a report Sunday that Saudi Arabia’s sovereign wealth fund -- the very investor that Musk has described as a linchpin of his plan to take Tesla private -- was considering buying a stake in another U.S. electric-car company."
— Cryptocurrency investors feel the pain. The New York Times's Nathaniel Popper and Su-Hyun Lee: “Pete Roberts of Nottingham, England, was one of the many risk-takers who threw their savings into cryptocurrencies when prices were going through the roof last winter. Now, eight months later, the $23,000 he invested in several digital tokens is worth about $4,000, and he is clearheaded about what happened. ‘I got too caught up in the fear of missing out and trying to make a quick buck,’ he said last week. ‘The losses have pretty much left me financially ruined.’ Mr. Roberts, 28, has a lot of company. After the latest round of big price drops, many cryptocurrencies have given back all of the enormous gains they experienced last winter. The value of all outstanding digital tokens has fallen by about $600 billion, or 75 percent, since the peak in January, according to data from the website coinmarketcap.com.”
— Defining the global middle class. The Washington Post's Heather Long and Leslie Shapiro: “The world is on the brink of a historic milestone: By 2020, more than half of the world’s population will be ‘middle class,’ according to Brookings Institution scholar Homi Kharas. Kharas defines the middle class as people who have enough money to cover basics needs, such as food, clothing and shelter, and still have enough left over for a few luxuries, such as fancy food, a television, a motorbike, home improvements or higher education. . . . In dollar terms, Kharas defines the global middle class as those who make $11 to $110 a day, or about $4,000 to $40,000 a year. Those are per-person numbers, so families with two parents and multiple children would need a lot more. It’s a wide range, but remember that he adjusts the amounts by country to take into account how much people can buy with the money they earn.”
— Tyson Foods to buy Keystone Foods. WSJ's Jacob Bunge: “Tyson Foods Inc. agreed to acquire a top meat supplier to McDonald’s Corp. and other chains, in a bid to make more profitable sales to restaurants as rising supplies and tariffs squeeze U.S. meat companies. Tyson said Monday it would pay $2.16 billion in cash for Keystone Foods, expanding the Springdale, Ark.-based company’s business selling meat to fast-food chains and adding processing plants to its network in the U.S. and Asia. The purchase aims to further shift Tyson’s business toward higher-profit products, such as chicken nuggets and fish filets, and away from slabs of non-branded, commodity meat that tend to be less profitable and prone to market swings.”
- The Senate Banking Committee holds a hearing on Russia sanctions.
- The Office of the U.S. Trade Representative holds public hearings on proposed tariffs on Chinese goods through Aug. 24 and on Aug. 27.
- Federal Reserve Board Chair Jerome H. Powell delivers a speech at the Federal Reserve Bank of Kansas City Economic Policy Symposium in Jackson Hole, Wyo., on Aug. 24.
- The Senate Homeland Security and Governmental Affairs Committee holds a hearing in St. Louis on the effects of tariffs on Missouri's manufacturing and agriculture on Aug. 27.
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