Donald Trump’s first order of business on Tuesday morning was to respond, on Twitter, to comments Mario Draghi delivered at the ECB’s annual forum in Sintra, where the ECB chief reiterated that rate cuts and more QE are available if conditions warrant.
Draghi’s remarks pushed bond yields and the euro lower. European stocks also rose as Draghi spoke.
Read more: Mario Draghi Delivers A Mini-‘Whatever It Takes’ In Sintra
The US president is, for lack of a better word, jealous. For the better part of a year, Trump has lamented Jerome Powell’s reluctance to get on board the MAGA train by cutting rates and, in April, he called for a restart to QE. Trump would like nothing more than to wake up one morning to discover that Powell had come out dovish guns blazin’, so when he sees Draghi calling for more rate cuts and QE, thereby pushing the euro lower, he’s green with envy.
“Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA”, a dejected Trump tweeted. “They have been getting away with this for years, along with China and others”.
Last week, Trump cited a Bloomberg story on European tourism while making the case that the euro is undervalued. He has, at various intervals, suggested that Europe manipulates its currency.
As ever, this is an insanity loop for Trump. His tariffs are contributing to global angst and denting external demand, which is prompting Draghi and the PBoC to ease policy. Trump then cites that easing as evidence of “manipulation” despite his having caused it.
Complicating things further is the fact that his fiscal policies insulated the US economy from the damage his trade war has caused abroad. So, when he asks why the Powell Fed hasn’t responded in the same manner as the FOMC’s global counterparts, the answer, ironically, is that Trump’s stimulus made more monetary accommodation in the US unnecessary last year.
Trump doesn’t want to hear any of that, though. And he’s also profoundly displeased that European stocks got a fillip from Draghi.
“European Markets rose on comments (unfair to US) made today by Mario D!”, he exclaimed. US equity futures rose as well. Trump did not mention that.
Speaking to reporters in Washington on April 13, Draghi weighed in on the importance of central bank independence. In a rare break with precedent, he alluded to Trump.
“Central banking independence is very important… because the whole credibility of monetary policy hinges on that”, Draghi said, adding that within their mandate, “central banks ought to be left free to choose what is the best way to comply with that mandate.” If not, “then they’re not accountable”, Draghi warned, adding that this has been “the central banking framework since the 80s everywhere.”
Draghi may well be trying to force the Fed’s hand. . .it’s called chess Donnie not checkers. . .
Why would Draghi want to force the Fed’s hand? That doesn’t make any sense. The effectiveness of cuts is in part due to yield differentials. It’s better for Europe if US maintains stronger relative rates. Draghi is looking at EU data, not Fed dot plots or EURUSD.
Watching Trump spewing garbage like that is actually painful.
Synchronization of messaging. Expectations of policy divergence must be squelched. Messaging has become an indispensable tool of monetary policy – for better or worse. Andalfatto sending up the Repo facility balloon. Brainerd talking QE with longer dated bonds meshes well with Draghi’s comments. Fed statement will be similarly dovish. Also want Powell on board before Weidmann takes over the ECB.
That is the inherent contradiction in Fill in the Blank First policies. Far-right people may have affinities for their compatriots in other countries, because they hate many of the same types of people. But there can only be one America First leader. The other leaders are Hungary First, or Brazil First, or Philippines First, or India First, or what have you. Their narrow national and partisan interests will take precedence over international or transnational problems, and since they have already dismissed pluralistic co-operation and comity, the only resort they have left are hard acts of power.