Goldman Says Trump’s Tweets Have Hit Market Pricing for the Fed
Goldman Says Trump’s Tweets Have Hit Market Pricing for the Fed
(Bloomberg) -- President Donald Trump’s tweets on trade have had a sometimes-sizable impact on market expectations for Federal Reserve policy, while his posts criticizing the Fed have had little impact, according to a Goldman Sachs Group Inc. analysis.
“Our interpretation of these findings is that markets believe the president primarily affects Fed policy indirectly by influencing the macroeconomic outlook, with at most a limited perceived role for tweets about the Fed,” Goldman economist Ronnie Walker wrote in a note Monday.
Trump tweets indicating trade-war escalation had a cumulative impact of reducing implied yields on fed funds futures by about 60 basis points, Goldman estimated. The bank keyed off a recent study from the National Bureau of Economic Research that found Trump tweets criticizing the Fed had cut market expectations for the federal funds rate.
When Goldman looked at trade-related tweets that indicated both escalation and de-escalation, the cumulative effect was a reduction of 40 basis points. Tweets critical of the Fed had an overall impact of reducing the implied rate by 10 basis points.
“Our results show only weak evidence for the notion that the market moves its monetary policy expectations in response to presidential tweets criticizing the Fed,” Walker wrote. By contrast, the statistically significant link with the trade tweets “is intuitive, as there are clear channels through which tariff escalation can lead to a dimmer economic outlook,” he wrote.
To contact the reporter on this story: Joanna Ossinger in Singapore at jossinger@bloomberg.net
To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cormac Mullen
©2019 Bloomberg L.P.