Over the past two weeks, as markets ricocheted between panic and euphoria depending on the hour and the headline, Donald Trump and Peter Navarro have been keen to push the envelope when it comes to assigning blame to Jerome Powell and the Fed.
That isn’t anything new. But, the effort to cast aspersions on the central bank has taken on an extra sense of urgency in August, especially over the past couple of sessions.
The president and Navarro have repeatedly maligned the Powell Fed on television and on Twitter this week and it’s not hard to discern why the smear campaign has kicked into high gear.
Trump’s decision to break the Osaka trade truce was the last straw for a bond market just waiting for an excuse to price in an outright global recession. This week ushered in the inversion of the 2s10s curve, something we immediately flagged as a potential PR nightmare for the White House.
Sure enough, by the end of a rough Wednesday on Wall Street, #TrumpRecession was trending on Twitter and the 2s10s inversion was plastered all over every business section in America.
The president lost his cool in a series of ridiculous afternoon tweets about “crazy inverted yield curves” and “clueless” policymakers.
Read more: #TrumpRecession, CRAZY INVERTED YIELD CURVE!
While it’s certainly true that some of the “rage” bull-flattening in the curve is attributable to the Fed’s reluctance to walk back or disavow the idea that the July cut was a “mid-cycle adjustment” (as opposed to the start of a full-on easing cycle), most of the blame for August’s market turmoil lies with Trump’s trade escalation and the knock-on effects it engendered (e.g., China’s decision to let the yuan breach the psychologically important 7 handle).
The keen observers among you might have noticed that Larry Kudlow and Steve Mnuchin have been conspicuously absent when it comes to the Fed blame game. It’s true that Larry has health problems and Mnuchin cannot openly criticize Fed policy by virtue of being the Treasury Secretary, but according to CNBC, Trump and Navarro are isolated in blaming Powell for August’s market tumult.
“Trump and economic advisor Peter Navarro are alone in the White House when it comes to blaming Federal Reserve Chairman Jerome Powell for the economic slowdown”, the network’s Kayla Tausche reported Thursday, citing senior administration officials who declined to be named for obvious reasons.
The two officials say that inside the White House, the “overriding belief” is that the market is reacting to the trade war, not anything to do with Fed policy.
Not only that, the officials indicated that the seemingly endless trade conflict is likely doing more to stifle the economy than last year’s rate hikes. “They say it is Trump’s trade war and tariffs against China that began more than a year and a half ago holding back growth”, CNBC adds.
As a reminder, there was nothing “miraculous” about Trump’s economy in the first place. Is it strong? Yes. Is it “great again” or otherwise anomalous from a historical perspective? No.
Needless to say, there is no chance of Trump coming around to that reality or, if he does, admitting it. He’d sooner demote Powell and risk a clash with lawmakers than he would cop to his own role in undermining stocks and the economy.
“The president is not expected to relent in his criticism of Powell”, Tausche dryly notes.
Asked about Trump’s incessant criticism of the central bank, the two senior officials were fatalistic. “It is what it is”, they told CNBC.