Minutes before the text of Jerome Powell’s Jackson Hole speech was released to the public, Donald Trump sent his regards. “Now the Fed can show their stuff!”, the president exclaimed.
It wasn’t clear what Trump was expecting. Powell cannot unilaterally cut rates on a whim during a pre-written speech just because China chose Friday to announce retaliatory measures against the US in the trade war.
Still, Powell did manage to engineer a bounce in risk assets off the morning lows hit following China’s announcement of new tariffs on US goods. The Fed chair emphasized the downturn in the global economy and went out of his way to enumerate all the geopolitical risks weighing on sentiment.
But it wasn’t enough for the president. Clearly, Trump expected Powell to, at the least, telegraph a commitment to aggressive rate cuts.
The president, already irritated after China’s broadside, launched into a spectacularly irritated harangue over the course of a half-dozen tweets. Here it is, in all its bombastic, angry glory:
As usual, the Fed did NOTHING! It is incredible that they can “speak” without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work “brilliantly” with both, and the U.S. will do great.
My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?
Our Country has lost, stupidly, Trillions of Dollars with China over many years. They have stolen our Intellectual Property at a rate of Hundreds of Billions of Dollars a year, & they want to continue. I won’t let that happen! We don’t need China and, frankly, would be far better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA. I will be responding to China’s Tariffs this afternoon. This is a GREAT opportunity for the United States. Also, I am ordering all carriers, including Fed Ex, Amazon, UPS and the Post Office, to SEARCH FOR & REFUSE all deliveries of Fentanyl from China (or anywhere else!). Fentanyl kills 100,000 Americans a year. President Xi said this would stop – it didn’t. Our Economy, because of our gains in the last 2 1/2 years, is MUCH larger than that of China. We will keep it that way!
Stocks had stabilized following Powell’s remarks and might have managed to coast safely through a lazy August Friday into the weekend. But following the president’s tweets, equities headed sharply lower.
This is a kind of worst-case scenario in the making. One of the risks headed into Friday was that if Powell stuck to the script in terms of suggesting that while the committee will provide the accommodation necessary to prolong the expansion, the Fed doesn’t view any rate cuts as a precursor to an honest-to-goodness easing cycle, it could be seen as the central bank rebuffing the White House’s efforts to force rate cuts by escalating trade tensions.
While that would be a positive development to the extent the Fed shouldn’t enable trade escalations (because it could encourage still more tariffs), it would force markets to ponder a scenario where Trump doesn’t get, or is unwilling to accept, the message from the Fed and keeps pushing the envelope on China to test Powell’s mettle.
Nobody wants to think about that scenario, but now we’re in it.
As ever, Trump is his own worst enemy and from the sound of his tweets, things are about to get worse.