Fed rate cut helps Trump fight trade war
WASHNGTON — Federal Reserve Board Chair Jerome Powell may not have wanted to cut interest rates. But in the end, President Donald Trump appears to have given him no choice.
Amid increasing signs that the global economy is slowing, Powell on Wednesday announced a quarter percentage point reduction in the cost of money.
The move represented an about-face for Powell, who only last year steered the Fed through four interestrate increases citing the economy’s strength. But he attributed the cut to a global growth slowdown that has been caused in large part by Trump’s confrontational approach to trade.
Now, Powell — merely by Fed Chairman Jerome Powell said Wednesday that “trade tensions are having an effect on the U.S. economy.”
fulfilling the Fed’s traditional role — is in effect enabling Trump to pursue his trade strategy without facing the full consequences at home.
“Powell’s in this extremely difficult situation,” said Michael Strain, a former research economist at the Federal Reserve Bank of New York. “He doesn’t
want to compromise the Fed’s political independence because the president is badgering him to cut. At the same time, the trade war is a reality of the U.S. economy and the global economy, and the Fed has to be responsive to those realities.”
Eighteen months of onagain, off-again tariffs — and tariff threats — against products from China, India, Mexico, Canada, the European Union, South Korea, Japan, Vietnam and Guatemala have taken a toll on business confidence.
On Thursday, Trump took to Twitter to threaten 10% tariffs beginning Sept. 1 on the remaining $300 billion in Chinese imports he hasn’t already taxed.
Caught in the crossfire, global manufacturers have been weakening for months. U.S. business investment in the second quarter fell 0.6 percent, the worst performance in more than three years.
Uncertainty caused by the president’s “America First” trade policies — perhaps the greatest threat to the record U.S. economic expansion — was a chief spur to Wednesday’s rate cut, Powell told reporters.
“Weak global growth and trade tensions are having an effect on the U.S. economy,” he said. “You see weak investment. You see weak manufacturing.”
For global companies doing business in or with the United States, much remains unknown. Negotiations with China, which once faced a March 1 deadline for results, now appear likely to drag on for months. A new North American trade agreement is languishing in Congress while the president has threatened to impose tariffs on imported automobiles and auto parts.
That means manufacturers such as BMW, which has its largest plant in the world in South Carolina, have “no clue at all about the trade and tariff regimes auto exports to and imports from the United States will face over the next year or even the next few months,” Carl Weinberg, chief international economist at High Frequency Economics, wrote in a client note earlier this month.
In a $21 trillion economy, the total tariff costs to date have been modest, Powell noted. But with the United States at the center of so many global supply chains, the uncertainty emanating from the White House is spreading doubt throughout global commerce, Weinberg said.
The president’s aggressive and unpredictable trade overhaul has placed the Fed in an unfamiliar position. The nation’s central bankers are accustomed to monitoring banking conditions, prices and the labor market. They don’t usually need to track trade negotiations in real time.
“Trade is unusual,” Powell said. “We don’t — you know — the thing is, there isn’t a lot of experience in responding to global trade tensions. So it is something that we haven’t faced before and that we are learning by doing.”
Powell insisted that “we’re not in any way criticizing trade policy,” but his assessment was that the policy was hurting the economy.