President Trump Reportedly “Pleased” with Powell’s Recent Rate Speech
Even before taking office, President Donald Trump had broken from tradition set by past presidents and taken aim at the Federal Reserve. More specifically Trump has repeatedly voiced his disdain for the Fed’s recent rate increases, even suggesting that the agency was “going loco.” However, following a speech by Fed Chairman Jerome Powell where he suggested that rates were “just below” neutral, reports indicate that the President is “pleased” with this assessment.
Back in October, a speech by Powell seemed to suggest that several more rounds of interest rates were in the cards. The Fed chair said at the time, “Interest rates are still accommodative, but we’re gradually moving to a place where they will be neutral. We may go past neutral, but we’re a long way from neutral at this point, probably.” Flash forward to last week and Powell’s “just below” neutral comments and you can see why the President might count this as a win. In an interview with CNBC, Treasury Secretary Steven Mnuchin told the network “I do think the president was pleased with the speech last week.”
So did Powell bow to the will of the President? Washington Post columnist Steve Pearlstein doesn’t see it that way. In a Times article published last week, Pearlstein wrote, “I seriously doubt Powell actually succumbed to presidential pressure or meant to announce a change in policy.” However he does admit, “that was the way it looked to a lot of sophisticated people.”
In the event that Powell actually was attempting to make nice with the President, it wouldn’t be the only story of cooling tension to emerge this week. Following a meeting between President Trump and China’s Xi Jinping, the two nations have announced what amounts to a temporary ceasefire in their ongoing trade war. Not only did the President agree to keep planned tariffs of $200 billion worth of Chinese goods at 10% instead of raising it to 25% but CNN reports that China has agreed to purchase a substantial number of goods from the U.S. in a bid to help lower America’s trade deficit. Jinping and Trump have also agreed to enter into negotiations for the next 90 days.
While bulls and bears alike will parse Powell’s speech for hints on what’s to come, the perceived slowing of rate hikes coupled with the China détente is currently allowing the markets to rebound some after taking a tumble last month. Nevertheless the Fed is still expected to raise rates again this month. As for China, we’ll have to see if this encouraging step toward winding down the trade war will lead to more or whether things will only escalate from here. It’s just another reminder that, in this administration, tempers can always turn on a dime.