Trump chooses Powell as fall guy if policies go bust
washington — US President Donald Trump looks to be lining up Federal Reserve chairman Jerome Powell to be the fall guy if the president’s trade and tax policies don’t succeed.
In a series of comments over the past two days that shook financial markets, Trump attacked the Fed for raising interest rates and for undercutting his efforts to slash the US trade deficit.
“He is just setting up someone else to blame if things don’t go according to his plan,” said Mark Spindel, founder and chief investment officer of Potomac River Capital in Washington.
The Fed has raised rates five times since Trump took office in January 2017 and has provisionally pencilled in two more increases for this year. It’s also scaling back the support it’s providing the economy by gradually reducing its holdings of Treasury and mortgage-backed bonds.
As authorities in Japan and Europe hold rates near zero, investors have pushed up the value of the dollar against the yen and euro. That’s made American products less competitive. Trump indicated he thinks that’s unfair.
“The United States should not be penalised because we are doing so well,” Trump tweeted on Friday. “Tightening now hurts all that we’ve done.”
The president also lashed out at China and Europe for keeping their currencies weak in order to gain an edge for their exporters.
Much of Trump’s ire with the Fed seems directed at the impact that the central bank’s interest rate increases have had on the dollar. Despite swooning on Friday in response to Trump’s currency comments, the greenback is about 5 per cent higher than it was when Trump imposed tariffs on steel and aluminum imports on March 23.
Trump’s budget director Mick Mulvaney separately took the Fed to task for allegedly not recognising that the president’s policies can allow the economy grow faster without spurring inflation. “Every time things seem to start getting a lot better, the Fed pumps the brakes,” he told Fox News on Friday.
The president’s comments shift attention during a week when he’s facing growing pressure over his relationship with Russian President Vladimir Putin, after the two leaders met on Monday in Helsinki. Trump came under fire for his lukewarm support during a news conference with Putin for the finding by US intelligence agencies that Russia meddled in the 2016 election.
It’s not that unusual for politicians to blame the Fed when things go wrong with the economy. Trump’s outburst, though, comes at a time when the economy is “in a really good place,” according to Powell.
The unemployment rate under Trump has fallen to 4 per cent, from 4.8 per cent the month he was sworn in, and some economists predict gross domestic product last quarter expanded by about 4 per cent — double the pace in the first three months of the year. The Commerce Department’s first estimate for secondquarter GDP is scheduled for release on Friday.
Trump told CNBC on Thursday that he was “not thrilled” with the Fed over rate hikes. “I am not happy about it,” the president said. “But at the same time I’m letting them do what they feel is best.” Trump also called Powell “a very good man.”
No influence on currency markets
Trump is not trying to influence currency markets, Treasury Secretary Steven Mnuchin said on Saturday, reiterating that a strong US dollar reflects a strong US economy and is in the United States’ longterm interest.
Mnuchin told reporters in Buenos Aires for the G20 meeting of finance ministers and central bank governors that both he and Trump fully support US Federal Reserve independence.