IN AMERICAN politics, it is axiomatic that presidents get (and take) the credit for economic prosperity and the blame for downturns. The reality is that the state of the U.S. economy at any given time results from factors that the president can control, such as his own policies and leadership style; factors that he can’t control, such as conditions in China, Europe and other distant markets; and factors that he might influence but probably shouldn’t, such as the decisions of the independent Federal Reserve. The current turbulence in the financial markets, limited to paper losses so far but worryingly capable of spreading to the “real” economy, illustrates the point.
The smart thing for President Trump to be doing right now would be to reassure markets that he has control over what he can control. He would be radiating confidence about the medium- and long-term prospects of the U.S. economy, which, the Dow Jones industrial average’s ups and downs to the contrary notwithstanding, are basically good. The Federal Reserve’s latest assessment provides zero evidence of imminent recession but, rather, indicates that “the labor market has continued to strengthen and that economic activity has been rising at a strong rate.” Mr. Trump would be redoubling efforts to remove those sources of market uncertainty based in his own policies, by pushing for prompt congressional approval of his updated trade agreement with Mexico and Canada. Then, he would be resolving once and for all his outstanding trade conflicts with Europe and Japan so as to present a united front against China, with which the United States has its most legitimate trade-related grievances. He would be bargaining in good faith with Democrats to end the partial government shutdown.
Instead, the president has indulged his penchant for scapegoating, this time by blaming the Fed, and its chairman, Jerome H. Powell, for allegedly raising interest rates “too fast,” as the president put it. “The only problem our economy has is the Fed,” Mr. Trump tweeted on the morning of Christmas Eve. “They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders.” This outburst undercut Treasury Secretary Steven Mnuchin’s attempt, two days earlier, to reassure the public that his boss had no intention of firing Mr. Powell, nor believed he had the power to do so. Markets plunged Monday but rose Wednesday, when Mr. Trump’s top economic adviser, Kevin Hassett, announced that Mr. Powell was “100 percent” safe in his position — thereby demonstrating both the harm of Mr. Trump’s rhetoric and the need to mitigate it.
The basic problem here is that financial markets thrive on political calm and policy stability, whereas Mr. Trump, as he has sometimes acknowledged, feels more comfortable with conflict and unpredictability. Yes, stock prices can be hurt when the Fed raises interest rates, and the wider economy may slow as well. At least when the central bank acts, however, it does so on the basis of data, economic models and other rational criteria. Unless and until Mr. Trump learns to make decisions the same way, his presidency will remain a source of economic risk.