Donald Trump donned his rates strategist hat on Monday morning and took to Twitter to deliver a three-tweet exhortation to Jerome Powell and the Fed, who are in the blackout window ahead of the July meeting.
“With almost no inflation, our Country is needlessly being forced to pay a MUCH higher interest rate than other countries only because of a very misguided Federal Reserve”, Trump said.
In October, Trump became the all-time record holder for most interest paid in a fiscal year when Treasury reported that the US spent $523 billion on interest in FY2018, up 14% from 2017.
(Treasury Dept.)
The president continued, as he’s wont to do. “In addition, Quantitative Tightening is continuing, making it harder for our Country to compete”, Trump yelled.
That is some semblance of true, although, as ever, it’s not entirely clear whether Trump understands the mechanics. “I believe one of the only ways that QE actually works successfully is to indirectly drive down the currency”, SocGen’s Albert Edwards wrote earlier this month. “Of course, you are not directly targeting it, but you know as night follows day exactly what is going to happen”, he added. We’ve made similar remarks in these pages. Competitive easing, trade wars and currency wars are inherently related and, in many respects, synonymous, so whether explicit or implicit, overt or tacit, this is a discussion we’ve all been having since Trump became president.
Speaking of currencies (and currency wars), Trump ratcheted up the rhetoric ahead of the ECB meeting, calling it “very unfair that other countries manipulate their currencies and pump money in!” You’ll want to watch for how he responds to the ECB statement and any verbal cues from Draghi later this week.
Of course, this is just another example of Trump implicitly trying to strip foreign central banks of their ability to conduct monetary policy in the interest of their own economies. It’s obviously true that rate cuts and QE influence exchange rates, so there’s a sense in which Trump is just calling a spade a spade, but this kind of thing should be left to Steve Mnuchin and besides, one assumes the president has better things to do at 8:30 AM on a Monday than accuse America’s trading partners of currency manipulation for the third time in a month.
“It’s a mad, mad world. No-one wants a strong currency in a deflationary world”, SocGen’s Edwards said Monday. “A race to the bottom that Trump will soon play – and win”.
Also, the president seems to have picked up on the concept of “insurance cuts” and he also appears to have internalized the message from the extant literature on the relative merits of cutting “big” out of the gate when operating near the lower bound. Or at least it sounds like that’s what Trump was trying to convey on Monday when he said “It is far more costly for the Federal Reserve to cut deeper if the economy actually does, in the future, turn down!”
Other highlights from the president’s (now traditional) daily monetary policy decree include this on the economy:
As good as we have done, it could have been soooo much better. Interest rate costs should have been much lower, & GDP & our Country’s wealth accumulation much higher. Such a waste of time & money.
And this, on why the Fed should cut sooner rather than later:
Very inexpensive, in fact productive, to move now. The Fed raised & tightened far too much & too fast. In other words, they missed it (Big!). Don’t miss it again!
As Pimco’s Joachim Fels put it, “The heyday of central bank independence now lies behind us”.
Read more on the end of central bank independence
By the way, is it clear that QT is continuing? The last two weekly reports from the Fed showed the balance sheet increasing by $2B and then declining by $7B. Or if there was any change in the target to end the runoff (which I think was September), should we have expected something in their statement?
djt doesnt let facts get in the way of a good mob rally!