Donald Trump is worried about America’s “great manufacturers”.
So worried is Trump about the American industries that he is, in some cases, undercutting with his adversarial trade policies, that he needs to bully and badger the central bank into delivering rate cuts in order to make sure the FX headwind from a stronger dollar doesn’t hurt bottom lines.
“As your President, one would think that I would be thrilled with our very strong dollar”, Trump began, kicking off a series of comical mid-morning tweets on Thursday. “I am not!”, he immediately shrieked.
Trump now feels like it’s incumbent upon him to assail Jerome Powell and the Fed every, single day, despite a Monday Op-Ed from Volcker, Greenspan, Bernanke and Yellen, imploring him to stop.
“The Fed’s high interest rate level, in comparison to other countries, is keeping the dollar high, making it more difficult for our great manufacturers like Caterpillar, Boeing, John Deere, our car companies, & others, to compete on a level playing field”, Trump went on to explain.
Of course, he doesn’t mention that Deere and Caterpillar have both cited the trade war over the past year in explaining why the outlook for their businesses is cloudy. Indeed, it was just two weeks ago when CAT blamed tariffs (in part) for higher manufacturing costs. The bellwether’s latest quarterly results included profit guidance at the low-end of forecasts thanks to higher costs and falling sales in Asia. As far as America’s “car companies”, Trump has repeatedly found himself at odds with GM, and that’s to say nothing of his infamous, one-sided war of words with Harley Davidson.
But personal responsibility isn’t the president’s strong suit and so, he blames the Fed.
“With substantial Fed Cuts and no quantitative tightening, the dollar will make it possible for our companies to win against any competition”, he said Thursday, reiterating Peter Navarro’s message delivered just hours earlier on Fox.
Trump rounded things out by again deriding the central bank, as he did on Wednesday, when he called them “incompetent”.
“We have the greatest companies in the world, there is nobody even close, but unfortunately the same cannot be said about our Federal Reserve”, the president seethed. “They have called it wrong at every step of the way, and we are still winning. Can you imagine what would happen if they actually called it right?”, he wondered.
Although the Fed’s dovish pivot has led to a veritable collapse in yields in 2019, 2-year real rates are still elevated compared to Powell’s predecessors (see visual below) and the Trump administration now appears poised to focus the public’s attention on the yield differentials pillar which helps support the dollar (see chart above).
(BBG w/ annotations by The Macro Tourist)
As ever, the ultimate irony is that with each tweet, Trump makes it harder for the Fed to cut rates by stripping Powell of plausible deniability when it comes to charges of politicizing monetary policy.
Additionally, it is now abundantly clear that if China allows the yuan to move substantially lower over the next month and/or if the ECB in September ends up “out-doving” the Fed on the way to catalyzing more euro weakness, Steve Mnuchin will be asked to intervene to bring down the dollar.
We are now squarely in the throes of a global currency war.