Fed Chair Powell Rejects President Trump’s Proposed Big Discount Rate Cut
This morning at its Jackson Hole, Wyoming, annual symposium, Fed Boss Jerome H. Powell said that while the Fed is prepared to add more stimulus if the economy slides, the central bank is not prepared to take any monetary easing action or significant reduction in its interest rate.
Wait, what's going on?
Trump has been placing significant pressure in the media over the past months on Powell and the Fed to materially reduce rates. He has requested the Fed reduce its discount rate from around 2.25% to 1.25%. Powell and the Fed’s position is that “our economy is in a favorable place...,” but, perhaps acknowledging Trump’s public trade position, they continue to state that there are “significant risks” with the uncertainty of that trade policy.
Powell noted that the central bank was prepared to provide more stimulus if a global economic slowdown, aggravated in recent weeks by geopolitical events and trade policy uncertainty, hurts the U.S. economy. But overall, he stated that the U.S. economy is in a good place with low unemployment, solid growth and strong consumer spending, basically painting a picture or an economy that may need a small boost but not massive aid.
Apparently, Trump did not like Powell’s remarks based on a tweet from Trump stating, “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...” With Trump’s tweet coming on the heels of Powell’s cautious remarks in Jackson Hole, the stock market is reacting and dropping significantly: > 600 points on the DOW and > 200 points on the NASDAQ. Not a good reaction from the stock markets, particularly amid all the global trials and tribulations, escalating trade tensions, the threat of a global currency war, and slowing global growth.
So, now what?
Where will the Fed go when it meets again in mid-September? A 25-basis point reduction? 50-basis points? With the general elections fast approaching, rest assured you will continue to see pressure on Powell and the Fed.
In the meantime, China announced today that it will retaliate on the Trump Administration’s trade policy and will impose $75 billion of its own tariffs on U.S. products. Not quite the same as Trump’s $300 billion imposed on China, but the trade wars escalate.
What’s next? Will the EU enter the fray? The signals are there. Stay tuned as it continues to heat up and watch your $$.
If you have any questions regarding this post or any other related matters, please email me at rcgabrielski@norris-law.com.