“Three more Central Banks cut rates”, Donald Trump sighed, in a Wednesday morning tweet.
He included the quotation marks, which means the US president was likely scanning the morning headlines. We don’t take him for an RBNZ/RBI/BoT watcher.
The trio of surprise rate cuts out of Asia overnight are the talk of the proverbial town on Wednesday, and the implication for the burgeoning global currency war is pretty clear: Nobody wants to start from behind.
Read more: Race To The Bottom Intensifies As Trio Of Surprise Rate Cuts Ripple Across Markets
Wednesday’s rate cuts from New Zealand, Thailand and India come hot on the heels of Monday’s yuan devaluation which sent shockwaves across global markets and prompted the Trump administration to brand Beijing a currency manipulator.
Predictably, Trump is furious that other countries continue to cut rates and the president is now flat out demanding the Fed act in order to avert dollar appreciation.
“Our problem is not China, our problem is a Federal Reserve”, Trump declared on Wednesday, before accusing Jerome Powell of being “too proud to admit [his] mistake of acting too fast and tightening too much”. Trump also claimed the Fed is trying to avoid admitting that he was right.
Then came the all-caps decree. “They must Cut Rates bigger and faster, and stop their ridiculous quantitative tightening NOW”, Trump said.
The president’s Fed criticism has now crossed over into absurd territory. Have a look at this chart from Deutsche Bank:
The president’s Wednesday tirade comes less than 48 hours after Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen penned an Op-Ed imploring the White House to cease and desist with the encroachments on Fed independence.
Trump has also been watching the yield curve flatten, and someone has apparently told him that it doesn’t bode well for his reelection. “Yield curve is at too wide a margin”, he said Wednesday, fumbling in his hapless efforts to weigh in. The 3-month/10-year curve collapsed to -32bps this week, the flattest since before the crisis.
The president capped things off by calling the Fed a name.
“Incompetence is a terrible thing to watch, especially when things could be taken care of sooo easily”, Trump said. “We will WIN anyway, but it would be much easier if the Fed understood, which they don’t, that we are competing against other countries, all of whom want to do well at our expense!”
Trade is always a zero-sum game for the president. He does not know the meaning of the word “cooperation”. And the irony is, the beggar-thy-neighbor currency wars will ultimately come to nothing.
Indeed, unlike trade, competitive easing is a zero-sum game. “When all central banks are easing, they are just offsetting each other. They are in a bad equilibrium, making each other ineffective”, BofA cautioned last week. “They all end up with looser monetary policies, but without any change in their currencies”, the bank continued, on the way to warning that when it’s all said and done, all that’s going to happen is that central banks will “support asset prices, without affecting the real economy, making them vulnerable to bubbles in the future”.
With Trump assailing the independence of the Fed, Navarro calling the shots on trade policy, Bolton and Pompeo in charge of national security, and Miller pushing his white supremacy agenda, what’s there to worry about? LOL.
Will we see Larry Kudlow today?
Oh gosh, I hope so! lol
Thanks Mr. H, another great article.
Also PROPS for predicting Trump going full Erdogan with regard to the Fed as early as last year – that was a terrifyingly correct.
By now, Erdogans attacks on “his” central bank seem almost feeble in comparison.
P.S.: Kudlow will rock it 🙂
I wonder how long it will take our ‘stable genius’ to clue in that he’s the problem not the Fed. Speaking of incompetence…
He’ll ‘love’ the negative interest rates PIMCO says are coming!
that will never happen, I’m afraid
sorry, last comment was meant as a reply to Mt Math