Trump Using Fed, Strong Dollar Complaints to Stir Voter Base
(Bloomberg) -- President Donald Trump’s attempts to blame Federal Reserve Chairman Jerome Powell for any hiccups in the U.S. economy have made a comeback -- this time directed at his conservative base as he gears up for a tough 2020 re-election campaign.
And many investors and economists listening in are learning to tune out the complaints.
Trump may be lining up his hand-picked choice to lead the Fed as a scapegoat in case his trade and tax policies don’t succeed: firing off a series of tweets, interviews and off-the-cuff remarks -- unprecedented for an American president -- that have at times shaken financial markets.
On Saturday Trump laid out the same old gripes, ending a period of quiet from him on the Fed during which Powell and most of his Fed colleagues have pivoted toward being patient on further interest rate increases. That shift calmed markets and essentially gave Trump what he wanted. The S&P 500 Index is up almost 12 percent since the end of 2018, and the greenback is slightly softer on the Bloomberg Dollar Spot Index.
While Trump’s criticisms may sound familiar to investors, the president is using those grievances to impress and motivate his supporters. During a wide-ranging, largely unscripted two-hour speech on Saturday at the Conservative Political Action Conference, Trump took a swipe at Powell as someone who “likes raising rates” and a “gentleman that likes a very strong dollar.”
The speech also touched on an array of other long-standing Trump complaints, including Robert Mueller’s Russia investigation, media reporting on the size of Trump’s inauguration crowds, and immigration.
“The comments were made during a political speech and appear to me more political commentary for his base, rather than serious policy considerations,” said Mark Sobel, U.S. chairman for the Official Monetary and Financial Institutions Forum, a London-based think-tank. Trump’s own expansionary fiscal policy, which has given the economy a boost, have “heavily contributed to the outcome which he decries” at the Fed and with the dollar, Sobel said.
Trump’s speech on Saturday was an early glimpse of his focus on the 2020 election. Democrats taking the field, including senators Kamala Harris, Elizabeth Warren, Bernie Sanders and Amy Klobuchar, are stepping up attacks on his economic agenda, including the 2017 tax cuts and the domestic impact from the trade war with China.
Fed on Hold?
While the Fed took some political heat during the financial crisis a decade ago, Trump’s attacks come with U.S. unemployment near a 50-year low. Fourth-quarter GDP data released Friday showed a steadier-than-expected economy, though the Fed does see sufficient uncertainties ahead to warrant a wait-and-see attitude on rates. Investors bet it will stay on hold all year, according to interest rate futures pricing.
Trump’s comments on the dollar may give other leaders the license to also jawbone their currencies, said Sobel. And they also threaten to undermine Trump’s trade team’s efforts to negotiate currency provisions into trade deals. A new pact with Canada and Mexico has an exchange-rate mechanism, as will any agreement that Trump strikes with China.
Traditionally, commentary on the U.S. dollar is reserved for the Treasury Secretary, while Fed officials focus on monetary policy and their dual mandates involving inflation and employment. The current secretary, Steven Mnuchin, has broadly stuck to the mantra of a strong dollar being good for the economy. A Treasury department spokesman didn’t reply to emailed questions about whether Mnuchin agreed with Trump’s latest comments on the dollar.
Financial markets went into a tailspin late last year over concerns the Fed would keep raising rates and on worries about a trade war. U.S. stocks suffered their steepest December losses since the Great Depression, with Bloomberg reporting that Trump had discussed firing Powell, his pick to lead the Fed. Alarm over that report, published late Friday, Dec. 21, saw stocks take another vicious tumble on Dec. 24 when Wall Street trading resumed.
Trump curbed his public attacks of the Fed shortly after that episode, and central bank officials have since gone out of their way to stress they’re in no rush to hike rates. They held borrowing costs steady at their January meeting, and shortly after that Powell joined the president for a steak dinner at the White House on Feb. 4 to discuss the economy’s performance. Monetary policy wasn’t discussed, according to Mnuchin, who was also present.
The U.S. dollar slipped early Monday trading in Asia after Trump’s comments, but many investors are likely to discount the latest rhetoric.
“Trump’s message has not changed since December, he’s still talking about the need for a Fed that doesn’t hike aggressively and is more sensitive to the markets and to avoid a strong dollar,” said Tom Orlik, chief economist for Bloomberg Economics. “The impact on the markets will be less.”
Prior to Trump, public White House criticism of the Fed had been rare, out of respect for the central bank’s independence to conduct monetary policy and keep inflation in check. Fed independence is an article of faith among investors who buy U.S. debt and finance the country’s budget deficit, who rely on the central bank to ignore political pressure to keep rates unnecessarily low, which could weaken the dollar.
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