Powell and Trump Are Locked in a Battle for Wall Street’s Trust
(Bloomberg) -- Jerome Powell has been sucked into a one-sided communication fight with Donald Trump, who blames the Federal Reserve chairman for losses in the stock market.
Powell can’t match the president’s megaphone on social media. But he can try to prevent equity prices becoming the barometer of Fed success by reminding the public that Congress gave it a different mandate: stable prices, and jobs for as many Americans as possible.
Trump’s Twitter feed is “drowning out the message that the economy is doing well with low inflation and record low unemployment,’’ said Sarah Binder, a senior fellow at the Brookings Institution in Washington.
Since Oct. 3, U.S. equity prices have plunged almost 15 percent, and Trump has put the blame squarely on the Fed. He tweeted on Dec. 18 that central bankers needed to “feel the market’’ and hold off from hiking -- one day before they raised rates. Bloomberg News reported Dec. 21 that the president had discussed firing Powell.
The Fed chief has a chance to snatch the initiative back with public appearances on Friday in Atlanta and Jan. 10 in Washington.
“The burden is on him to come back and say, we are taking everything into account and we are also doing it independently,’’ Diane Swonk, chief economist at Grant Thornton LLP in Chicago. “There is no easy answer here,’’ she said, because the Fed can’t be entirely separated from the causes of stock market volatility.
While investors had expected last month’s rate increase, which showed Powell was willing to defy the president, they were alarmed by projections for two more hikes in 2019. The S&P 500 index fell more than 5 percent from Dec. 19-21.
Not Just Fed
The slide in share prices has many causes, analysts say.
Stocks may have been over-valued relative to a forecast for moderating U.S. and global growth in 2019. Domestic stimulus engineered by Trump in early 2018 will fade in the coming quarters. China and the eurozone both show signs of slowing. The economic outlook could deteriorate further amid Trump’s trade dispute with China and the threat of a disorderly U.K. exit from the European Union.
The Fed did acknowledge those growing risks in its Dec. 19 policy statement, pledging to monitor “global economic and financial developments.’’ That left investors puzzled over what it would take for the central bank to shift into a holding pattern -- especially when there are few signs of rising inflation.
For all that, the data show the Fed is doing what Congress asked it to. The jobless rate is below the Fed’s estimates of what constitutes full employment, and inflation is running close to its 2 percent target.
Moreover, Powell and his colleagues have said they’ll pull back if new data confirm the market’s more pessimistic outlook. The two projected rate hikes could disappear, just as four increases foreseen at the end of 2015 turned into just one during 2016. Investors, however, aren’t getting that message. Two possible reasons stand out: The critics have a louder voice, and Fed communication hasn’t been clear.
Trump has 57 million followers on Twitter and each of his tweets on the Fed is amplified by blaring media headlines. The Fed Board has 500,000 followers, and generally limits its tweets to dry topics like speeches or economic research. And, while the world’s most powerful central bank does get plenty of media coverage, its own communication can be hard to decode -- even for market professionals.
Could Do Better
It could do better, according to Richard Torrenzano, chief executive of The Torrenzano Group, which counsels corporations and executives on reputational strategy.
“The Federal Reserve does have a large megaphone and bully-pulpit platforms they have chosen not to use,’’ Torrenzano said. “They need to explain why and what they are doing in an active and thoughtful way,” including on social media, he said. “Until they do, they will continually get beat up.’’
One example is the current Fed dependence on incoming data, which officials could do a better job of explaining. It’s not the first time they’ve had this problem. In 2006, the Fed’s then-Vice Chairman Donald Kohn urged his colleagues to spell out what that meant. “We have all said in our speeches, we are becoming more data-dependent,” he said. “It behooves us to explain to the public what data we’re looking at.”
Another difficulty for Powell is that investors have an exaggerated sense of what problems the Fed can or should solve, according to Mickey Levy, chief U.S. and Asia economist at Berenberg Capital Markets. He thinks Powell should stick to emphasizing his progress toward meeting the central bank’s statutory goals.
“Markets expect the Fed not just to manage the real economy, but to prop up the stock market,” Levy said.
©2019 Bloomberg L.P.