Trump blasts Fed, China, Europe for creating U.S. disadvantage

WASHINGTON — President Donald Trump accused China and the European Union on Friday of manipulating their currencies to gain an edge in global trade and escalated his criticism of the Federal Reserve for raising interest rates, saying those moves were putting the United States at a disadvantage.

Trump appears ready to blame the Fed for trying to slow down a booming economy that he wants to make a centerpiece of the midterm elections. The president’s $1.5 trillion tax cut, along with federal spending increases, have injected new stimulus into an economy that is finally shaking off the last vestiges of the recession. In a flurry of early morning Twitter posts, Trump complained that the Fed’s pattern of rate increases “hurts all that we have done” and that a “stronger and stronger” dollar was “taking away our big competitive edge.”

He also doubled down on his trade fight with China, vowing in a CNBC interview that aired Friday that he was ready to impose tariffs on $500 billion worth of Chinese imports — roughly all the goods China sends to the U.S. annually.

But behind Trump’s criticism is an economic paradox of his own making: The very policies he has pushed, like tax cuts, increased government spending or protectionist tariffs, are fueling many of the global changes he finds so troubling.

A booming U.S. economy is strengthening the dollar against other currencies, and Trump’s tariffs are prompting some countries, like China, to take steps to protect their exporters. The Fed, concerned about too rapid an expansion that is fueled in part by the enormous fiscal stimulus ushered in by the White House, is slowly raising rates to keep the economy from overheating.

White House aides said Trump was not trying to influence the Fed, the nation’s central bank, but added he would prefer if officials paused their plans for rate increases to avoid dampening economic growth. The Fed has raised rates twice this year and is on track to raise them twice more by the end of the year, officials indicated after the Fed’s meeting in June.

Eswar Prasad, an economist at Cornell University, said the president’s tweets displayed “a breezy ignorance of facts and limited understanding of basic principles of economics.”

“The dollar is strengthening against other currencies because the U.S. economy is doing well and is implementing a fiscal expansion through a massive tax cut, both of which Mr. Trump has claimed credit for,” Prasad said. He added that condemning rate increases as “implicitly aiding the enemy in U.S. trade wars is a dangerous and destructive strike against the Fed’s independence.”

While financial markets seemed to shrug off Trump’s initial comments on the Federal Reserve, which came Thursday, his Twitter posts Friday — all of which seemed aimed at pushing the dollar lower — drew a reaction.

The dollar, as measured by the U.S. dollar index, fell sharply. Prices of 30-year U.S. Treasury bonds, which are highly sensitive to changes in inflation expectations, also dropped, pushing yields — which move in the opposite direction — higher.

“Trump clearly doesn’t accept that a strong dollar and a widening trade deficit are the natural result of his own fiscal expansion,” said Brad W. Setser, a senior fellow for international economics at the Council on Foreign Relations.

Trump’s sharp words come ahead of a gathering in Argentina this weekend of finance ministers of the Group of 20 countries, where Treasury Secretary Steven Mnuchin is expected to participate bilateral and broader multilateral meetings. Fed Chairman Jerome Powell will participate in a discussion on global economic risk, the Treasury Department said.