The Fed Is Learning What Being Donald Trump's Ex-Girlfriend Feels Like

Andrew Cummings
July 22, 2018

"We have a long tradition here of conducting policy in a particular way, and that way is independent of all political concerns", Powell said in a radio interview last week with "Marketplace".

"I don't like all of this work that we're putting into the economy and then I see rates going up", Trump said in an interview with CNBC. "We have been ripped off by China for a long time, and I told that to President Xi (Jinping)", he said.

The US dollar relinquished gains from earlier in the day and Treasury yields dropped following the president's remarks.

Benchmark 10-year USA notes last fell 12/32 in price to yield 2.8894 percent, from 2.847 percent late on Thursday. Stocks, however, showed little reaction and remain slightly lower on the session. Trump is certainly allowed to say what he wants about The Fed, and he wouldn't be the first president to try something, and like everything else, the Fed is now a partisan topic.

Trump also acknowledged that his comments are unusual but said he doesn't care.

Indeed, he has never been reticent on the subject.

The Washington Post says Trump broke with "longstanding practice" by criticizing the Fed, which presidents typically avoid doing "out of respect for the independence of the institution, and to avoid any hint of political influence over the nation's monetary supply".

"Uncertainty over the White House's dollar policy will certainly sow renewed seeds of doubt into global investors", Viraj Patel, foreign exchange strategist at ING, wrote in a report.

"I'm doing this to do the right thing for our country", Trump said in a CNBC interview aired Friday.

The Fed has raised rates five times since Mr Trump took office in January 2017, and has penciled in two more hikes for this year.

Most Fed policymakers see the USA job market as close to full strength, while inflation has recently risen to the Fed's 2 percent target. The fed-funds futures market is pricing in an 88% probability of a similar increase in September, according to Bloomberg, although the odds for a fourth 2018 increase, to 2.25%-2.5%, in December are far less certain, at 62%. I don't necessarily agree with it because he's raising interest rates, I'm not saying I agree with it, and I don't necessarily agree with it, I must tell you I don't. In particular, the Fed's most recent rate hikes could dilute some of the benefit of the tax cuts Trump signed into law a year ago.

Martin's successor, Arthur Burns, was a close ally of President Richard Nixon. The Treasury, usually the lead spokesperson for the dollar, for years has stuck to the script that a strong dollar is good for the economy. To put that in historical perspective, Nixon had blamed his narrow defeat in 1960 to John F. Kennedy on a sluggish economy resulting from tight Fed policies.

The president's attacks on the Fed's rate increases and the recent strengthening of the dollar highlight an inherent contradiction at the core of his economic policies.

China's central bank rate is now 4.35 per cent and the country hasn't cut its benchmark rate since 2015.

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