On Wednesday, CNBC’s Joe Kernen gave a terrified-looking Steve Mnuchin a chance to “become the first [Treasury Secretary] in history to say ‘We have a weak dollar policy'”.
Kernen’s question, obviously, was prompted by Donald Trump’s incessant exhortations for the Fed to help weaken the dollar in the interest of helping the administration win the trade war.
The problem for Trump is that a dovish Fed, expectations for rate cuts and falling US yields have not been enough to undercut the greenback in 2019. Why? Well, simple. It”s because the rest of the world is easing too and also because the US economy continues to hold up relatively well when juxtaposed against, for instance, the deepening manufacturing slump in Germany.
Trump is seemingly at wit’s end but he’s unwilling to concede that part of the “problem” (and the scare quotes are there for a reason) is down to his administration running a policy mix that’s conducive to dollar strength on multiple fronts. The trade war undercuts growth abroad, while fiscal stimulus shields the US economy, driving the economic divergence wider. That’s dollar positive. The prospect of an overheating labor market forced the Fed to lean more hawkish than they otherwise might in 2018, another boon for the greenback. And during times of turmoil, the dollar has some safe haven appeal, depending on what the source of the turmoil is.
With the Fed hamstrung in its capacity to help (and “help” with the trade war isn’t something Powell isn’t inclined to do in the first place), Trump’s options for “correcting” the situation are limited. So, speculation has mounted that Mnuchin will be forced to adopt a weak dollar policy either tacitly or overtly and may eventually be compelled by the White House to resort to outright, active FX intervention.
Read more on the dollar intervention dilemma here, here and here
In his CNBC cameo on Wednesday, Mnuchin was non-committal.
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“I think the dollar is the reserve currency of the world. It’s in our interest; we want to maintain it”, he told Kernen, adding that “a stable dollar is very important and over the long-term period of time I do believe in a strong dollar, which signifies a strong US economy, a strong stock market and particularly because of the president’s economic policies”.
Note the emphasis on “long-term period”.
“Wow, that’s a really nuanced answer you gave”, a somewhat sarcastic Kernen remarked, apparently indicating that he was impressed at Mnuchin’s belabored attempt to dodge the question.
Pressed further, Mnuchin said he was “not going to advocate a weak dollar policy near-term”. When Kernen reminded him that “the president is [advocating that] in certain respects”, Mnuchin said “I think the president is very focused on a lot of issues”.
No arguments there, Steve.