THE TICKER

President Trump’s rhetorical assault on Federal Reserve Chair Jerome Powell is meeting resistance from an unlikely source: congressional Republicans. 

As Powell appeared on Capitol Hill for two days of semiannual testimony this week, GOP lawmakers in both chambers went out of their way to praise his performance at the helm of the central bank and emphasize the importance of maintaining the Fed’s independence from political pressure. 

Republicans didn’t invoke Trump’s name directly, but their point was clear: The president’s jawboning of Powell — a sustained complaint that turns a year old next Friday — is wearing thin. And Trump should be wary about making good on his threats to try to fire or demote Powell.  

“Thank you for your service,” Sen. Richard Shelby (R-Ala.) told the Fed chief in his appearance before the Senate Banking Committee on Thursday. “Thank you for your work to keep the Federal Reserve independent of both parties and do your job for what it was set up to be. We salute you for that.”

Sen. Pat Toomey (R-Pa.) told Powell he was happy to hear him say, in testimony Wednesday before the House Financial Services Committee, that he intended to serve out his full, four-year term atop the Fed, “in part because I do think it’s important the Fed remain insulated from political pressure. I also want to say that I think you’ve done an outstanding job.” Toomey, in a Bloomberg TV interview on Wednesday, said removing Powell would be a “very bad idea."

Powell collected similar attaboys in the House. “I think you are doing an outstanding job, Chair Powell,” said Rep. Andy Barr (R-Ky.). And Rep. David Scott (D-Ga.) urged him to “stay strong … The president can’t fire you. We in Congress, both Democrats and Republicans, got your back.”

Powell asserted Wednesday that he wouldn't leave if Trump tried to fire him — and he told lawmakers that he is accountable “to you and the public.” Yet Trump insists he has the authority and just hasn't decided to use it. “I have the right to do that,” the president said to NBC last month of demoting Powell. And he told the Hill he could fire Powell outright, “if I wanted to, but I have no plans to do anything.”

The law governing the Fed states the president could only remove Powell “for cause” — a standard that requires illegal behavior or serious malfeasance, not a difference of opinion over the direction of policy. Whether Trump could demote Powell is murkier. And Peter Conti-Brown, a financial historian who studies the Fed at the University of Pennsylvania's Wharton School, has argued Trump could win if the matter ended up before the Supreme Court. 

A fight over Powell’s future probably would get resolved long before then, however, and Congress would have a critical role to play, Conti-Brown says. “Politics is everything here, so Congressional support will raise the stakes for Trump should he attempt to proceed,” he said in an email. Lawmakers have a pair of “key levers,” he says: They could pass legislation clarifying Powell’s term is shielded from presidential interference; and senators could pledge to the administration they will refuse to schedule confirmation hearings for a successor if Trump tries to replace Powell. 

Given that power, Republicans sent an important signal this week with their expressions of support for the Fed chief. Notably, that goodwill didn’t generate itself. It’s the product of a behind-the-scenes campaign by Powell to build relationships with lawmakers in both parties. 

“I would say as far as meeting with Congress is concerned, I’m going to wear the carpets of Capitol Hill out by walking those halls and meeting with members,” Powell said in an interview with Marketplace radio last July. “I feel like that’s a really important thing that the chair can do.”

By that point, Powell had invested considerable time in the project, traveling that February, for example, to the Republicans’ House Financial Services Committee retreat in Maryland, my colleague Heather Long reported last year. Now 16 months into the job, Powell has met with lawmakers individually or in small groups 116 times, the Wall Street Journal calculates. Here’s a closer look, by Reuters, at Powell’s outreach:

Trump, in the meantime, has gone zero for four winning Senate confirmation of his most recent Fed nominees, with senators balking at the last two in part over concern about their loyalty to the president. 

The show of support for Powell isn’t unprecedented: Alan Greenspan and Paul Volcker before him both enjoyed bipartisan displays of support on the Hill. But it has become a rarer phenomenon since 2008, Conti-Brown says. “It is important to see its resurgence, given Congress's enormous role to play here,” he says. “For those who see the Trump administration swallowing Congress whole, yesterday's hearings are a strong counterpoint. They are also a warning: President Trump will interfere with monetary policy at his peril, given Congress's strong support for the Federal Reserve and its chair.”

MARKET MOVERS

Bad news abounds, but markets are setting records. The New York Times's Stephen Grocer: "Bad news is cheered. Good news makes investors nervous. Welcome to Wall Street. The S&P 500 reached a record on Thursday, after trading above 3,000 for the first time the day before. 

"The gains this week began after [Powell] suggested the nation’s central bank was worried about the economy. Just days earlier, strong data on the job market had the opposite effect on stocks. This counterintuitive reaction to the news is a phenomenon that’s explained by expectations for interest rates. The weakening outlook for the economy means, in all likelihood, borrowing costs are coming down — and in the right circumstances, this can be good for stocks."

— Earnings season is not going to be pretty: “Because of uncertainty around trade wars and global growth, a bulk of U.S. companies are lowering the bar for their second-quarter earnings,” CNBC’s Kate Rooney reports. “Of the 114 companies that have issued earnings guidance for the period, 77% have issued negative forecasts, according to data from FactSet.”

“Thanks in part to those warnings, earnings are estimated by analysts to have declined by 2.9% year over year in the second quarter. At the start of the period, analysts expected earnings to be basically flat. If that estimate for a decline holds up, it would mark the first time the S&P 500 has reported two straight quarters of year-over-year decline in earnings in three years, according to FactSet.”

  • A giant manufacturer just showed how bad it could be: “The Minnesota-based Fastenal, the largest fastener distributor in North America, reported worse-than-expected second-quarter earnings and revenue on Thursday,” CNBC’s Yun Li reports. "The company also particularly noted the damage the trade war has done to its business and the difficulty of countering the losses.” 

Inflation picks up. WSJ's Sarah Chaney: "U.S. consumer prices rose at a solid pace in June, but offered few signs of a breakout. The consumer-price index, which measures what Americans pay for household items such as ice cream and services such as eye care, increased a seasonally adjusted 0.1% in June from the prior month, the Labor Department said Thursday. Excluding the volatile food and energy categories, so-called core prices rose a stronger-than-expected 0.3% from May, the largest monthly rise since January 2018."

Deficit jumps 23 percent. CNN's Donna Borak: "The US budget deficit jumped 23.1% in the first nine months of the fiscal year compared with the same period a year ago, according to the US Treasury. The deficit widened to $747.1 billion, versus $607 billion last year, from October through June. Federal spending rose to $3.36 trillion in that period, while revenue increased to $2.61 trillion -- both records.

"The numbers, released Thursday in a monthly report from the Treasury, paint a darkening picture for the US budget as the federal government runs short on credit. The US has not had borrowing power since March, when the congressionally mandated debt ceiling kicked in, and independent analysts suggest the government could run out of money by September unless Congress can agree to allow additional borrowing."

Powell: Failing to raise the debt ceiling would cause "unthinkable" damage. The Hill's Sylvan Lane: "Powell said Thursday that the global economy could suffer 'unthinkable' damage if the White House and Congress fail to raise the federal debt limit. Testifying before the Senate Banking Committee, the Fed chairman said it was 'essential' for Congress to raise the legal limit on the federal debt before the U.S. government defaults on its loans. 'We've always paid our bills, and it simply must happen that Congress raises the debt ceiling in time to allow that to happen,' Powell said."

    There are funds on the market that could help you profit from American trade tensions with countries like China. But short-term bets are inherently risky.
    NYT
    TRUMP TRACKER

    TRADE FLY-AROUND: 

    American execs face harassment in China. NYT's Paul Mozur, Alexandra Stevenson, and Edward Wong: "A Koch Industries executive was told he could not leave China. An ex-diplomat who helped organize a technology forum in Beijing was hassled by authorities who wanted to question him. An industry group developed contingency plans, in case its offices were raided and computer servers were seized. Business executives, Washington officials and other frequent visitors to China who were interviewed by The New York Times expressed increasing alarm about the Chinese authorities’ harassment of Americans by holding them for questioning and preventing them from leaving the country.

    "They worry that trade tensions between Washington and Beijing could turn businesspeople and former officials into potential targets. Some companies are reviewing or beefing up their plans in case one of their employees faces problems."

    — France moves ahead with tech tax, despite trade threat: “France’s legislature gave final approval to a new tax on large tech companies like Alphabet Inc.’s Google and Amazon.com Inc., shrugging off the threat posed by a new U.S. trade probe into whether the measure discriminates against American firms,” the Wall Street Journal’s Sam Schechner and Paul Hannon report.

    “The vote came just hours after U.S. Trade Representative Robert Lighthizer said his office would investigate the tax under the same broad law the Trump administration relied on for its trade conflict with China … The Franco-American dispute raises tension as the two countries participate in a new round of multilateral talks under the aegis of the Organization for Economic Cooperation and Development about how to overhaul the corporate taxation system for the digital age.”

    — Wall Street is bailing on farmers: “In the wake of the U.S. housing meltdown of the late 2000s, JPMorgan Chase & Co hunted for new ways to expand its loan business beyond the troubled mortgage sector,” Reuters’s P.J. Huffstutter and Jason Lange report. “The nation’s largest bank found enticing new opportunities in the rural Midwest — lending to U.S. farmers who had plenty of income and collateral as prices for grain and farmland surged.”

    “But now — after years of falling farm income and an intensifying U.S.-China trade war — JPMorgan and other Wall Street banks are heading for the exits, according to a Reuters analysis of the farm-loan holdings they reported to the Federal Deposit Insurance Corporation (FDIC) … The retreat from agricultural lending by the nation’s biggest banks, which has not been previously reported, comes as shrinking cash flow is pushing some farmers to retire early and others to declare bankruptcy, according to farm economists, legal experts, and a review of hundreds of lawsuits filed in federal and state courts.”

    Walmart told the U.S. government privately in January that India’s new investment rules for e-commerce were regressive and had the potential to hurt trade ties.
    Reuters
    Chinese foreign direct investment came to US$3.3 billion in North America and US$9 billion in Europe in the first half, down by a fifth from a year ago.
    South China Morning Post

    — California lawmakers say Trump has to release his tax returns: “California lawmakers approved a bill on Thursday to force [Trump] to publicly release his tax returns ahead of the 2020 election, setting the stage for another legal showdown between the state and the Trump administration,” the Sacramento Bee’s Bryan Anderson reports, adding that Gov. Gavin Newsom (D) is expected to sign it.

    “The proposal … passed both chambers of the Legislature on a party-line vote. Democrats say the measure will serve as a model for providing voters with information about candidate’s finances, while Republicans argue it is unconstitutional … It would require Trump to file the last five years of his tax returns with the Secretary of State to get his name on the 2020 primary ballot. The information would then be published online, with contact information, Social Security numbers and medical information redacted from the public.”

    POCKET CHANGE

    — Amazon will retrain one-third of its U.S. workforce: “Amazon, the retail and tech giant with 275,000 full-time U.S. employees, will retrain a third of its domestic workforce to get ahead of technological changes that could overhaul warehouses, retail stores, transportation networks and corporate offices alike,” my colleague Rachel Siegel reports

    “The company on Thursday announced the $700 million initiative that will cover 100,000 workers by 2025. The program will build on existing training programs and add workshops that can help employees move up within the company. The training is not mandatory but marks a corporate emphasis on building skills for current workers, even if that means teaching them tools that apply beyond their current day-to-day roles.” (Amazon CEO Jeff Bezos owns The Washington Post)

    — Ford, VW will partner on autonomous and electric vehicles: “Ford and Volkswagen plan to announce Friday new joint ventures on autonomous and electric vehicles, two technologies considered critical to the future of the auto industry,” CNBC’s Paul A. Eisenstein reports.

    “The deal calls for 'billions of dollars' in investments and will allow the companies to share both intellectual property and hardware, according to company executives with first-hand knowledge of the negotiations.”

    MONEY ON THE HILL

    — AOC and Trump agree on something — seriously: “National Economic Council Director Larry Kudlow praised Democratic Rep. Alexandria Ocasio-Cortez on Thursday after the left-wing lawmaker from New York urged [Powell] to keep monetary policy loose because inflation was not an issue, something that [Trump] and his administration have been pushing for,” CNBC’s Fred Imbert reports.

    “‘I’ve got to give her high marks for that. She got that out of the chairman. By the way, that’s been my position. That’s been the president’s position. Strong growth does not cause higher inflation,’ Kudlow said, adding he would like to discuss ‘supply-side economics’ with Ocasio-Cortez in the future.”

    THE REGULATORS

    Trump blasts Libra. The president took to Twitter on Thursday night to weigh in on Facebook's proposed digital currency — and to make clear he isn't a fan. From Twitter: 

    It was a first for Trump. Per Bloomberg: "Trump’s entrance into the debate over Bitcoin and Libra could mark a significant development for crypto enthusiasts. The White House has largely remained silent on the subject even as federal regulators like the Securities Exchange Commission, Commodity Futures Trading Commission and units of the Treasury Department have grappled with how to regulate virtual coins."

    The president's defense of the dollar's strength was odd, considering he has reportedly asked aides to find a way to weaken it. That has led major Wall Street banks to consider the implications of a potential U.S. currency intervention. Goldman Sachs was the latest to weigh in Thursday, per Bloomberg: "Trump’s repeated complaints about other countries’ foreign-exchange practices have 'brought U.S. currency policy back into the forefront for investors,' strategist Michael Cahill wrote in a note Thursday. Against a fraught trade backdrop that’s created the perception that 'anything is possible,' the risk of the U.S. acting to cheapen the dollar is climbing, he said."

    THE FUNNIES

    From The Post's Tom Toles:

    BULL SESSION