Trump shreds economic playbook with jabs at Fed
President Donald Trump is showing that no economic-policy tradition is sacred in his pursuit of faster growth and lower trade deficits.
The president on Friday accused China and the euro area of manipulating their currencies, and complained that a rising dollar is blunting America’s “competitive edge.” In a reference to interest-rate increases by the Federal Reserve, Trump added, “tightening now hurts all that we have done. Debt coming due & we are raising rates — Really?”
In the flurry of tweets, Trump smashed two pillars of U.S. economy policy over the past quarter century. Presidents have traditionally delegated the nation’s stance on the dollar to the Treasury secretary, who usually hews to the position that a strong dollar is good for the economy. Past presidents have also steered clear of commenting on U.S. monetary policy out of respect for the Fed’s independence so the path of borrowing costs doesn’t move with the whims of politicians.
The question is whether Trump’s remarks mark the beginning of a new era of greater U.S. intervention, one in which the president and members of his cabinet feel free to weigh in on economic issues that were traditionally seen as outside the political domain.
In the meantime, currency traders may need to pay closer attention to the president’s Twitter feed. The dollar, which has strengthened more than 5 percent since the middle of April, fell after Trump’s remarks. The Bloomberg Dollar Spot Index slid as much as 0.74 percent, its biggest intraday decline since March, before paring its loss to about 0.6 percent.
“It breaks with the consistency in the dollar messaging that we’ve had over the last 25 years, which has provided a strong backstop for market-determined exchange rates,” said Shaun Osborne, chief foreign-exchange strategist at Scotiabank in Toronto. “At the very least, it injects uncertainty into the markets. If we see a consistent drumbeat on this from the president, it probably is going to weigh on the dollar.”
Trump’s dismissal of economic-policy tenets shifts attention during a week when he’s facing growing pressure over his relationship with Russian President Vladimir Putin and his lukewarm support for the finding by U.S. intelligence agencies that Russia meddled in the 2016 election.
In the short term, the president’s jawboning could affect everything from his trade war with China to the Group of 20 consensus on currencies.
Treasury Secretary Steven Mnuchin was heading to Buenos Aires on Friday for two days of talks with his G-20 counterparts, where he will likely face questions about U.S. dollar policy. At their last meeting, G-20 finance chiefs stuck to their commitment to avoid devaluing their currencies for competitive purposes. The Treasury didn’t immediately respond to a request for comment on the president’s remarks on the dollar.