The Federal Reserve cut interest rates to 2.25% on Wednesday, a move that you might have thought would please President Donald Trump. However, as the Dow Jones sold off 333 points and the U.S. dollar soared, Trump took to Twitter to berate Jerome Powell for not signaling enough easing was coming.
What was the exact moment that Powell crushed the Dow and sent Trump into a Twitter tailspin? Well, it appears to have been just a couple of words that sent stock market bulls heading for the hills, as the Fed Chief stated the rate cut was merely a “midcycle adjustment.” Clearly, in response to the adverse reaction from the markets, Powell was forced to try and steady the ship in the press conference with the following assurance,
“Let me be clear: What I said was it’s not the beginning of a long series of rate cuts. I didn’t say it’s just one or anything like that.”
Donald Trump wants the Dow Jones closer to 30,000 in 2020 because it would significantly increase the probability of his re-election. Trump’s relentless attacks on the Federal Reserve are primarily because the incumbent President is looking for maximum short-term stimulus. This point of view clashes with the Federal Reserve’s more long-term vision of sustainable growth.
A strong US dollar has been of particular annoyance to Donald Trump, as the Chinese have been able to reduce the effects of his tariffs with a moderate devaluation of the Yuan. In Europe, a weak euro has also meant that EUR/USD (the most important and heavily traded currency pair in the world) has remained low, keeping the dollar’s value historically elevated.
The mighty USD does, in theory, inhibit foreign investment into the U.S. But, with the Dow Jones and S&P 500 close to record highs before the FOMC’s rate cut, Trump’s seems unusually concerned with the exchange rate. Ultimately, complaining about the Fed is a useful crutch for Trump. If the Dow is soaring, it’s the Fed’s fault it’s not higher. And if it falls, Powell is entirely to blame as well.
Last modified (UTC): July 31, 2019 19:43