190712 Donald Trump
Donald Trump Image Credit: AFP

WASHINGTON: President Donald Trump resumed his attacks on Federal Reserve Chair Jerome Powell on Wednesday, blaming him for keeping the economy from growing much faster.

In yet another Twitter screed, Trump said: “The only problem we have is Jay Powell and the Fed. He’s like a golfer who can’t putt, has no touch.”

Trump appointed Powell to his position, but repeatedly excoriated him for raising the key interest rate too quickly last year. He has called on the Fed to reverse all of those moves, cutting the rate by a full point, to help the economy and weaken the US dollar.

“Big U.S. growth if he does the right thing, BIG CUT - but don’t count on him! So far he has called it wrong, and only let us down,” he tweeted.

“Yesterday, ‘highest Dollar in U.S.History.’ No inflation. Wake up Federal Reserve. Such growth potential, almost like never before!”

However, the International Monetary Fund in an unusually blunt blog post, said Trump’s tariffs and calls for lower interest rates to weaken the dollar won’t work and could slow the global economy.

The authors warned that “one should not put too much stock in the view that easing monetary policy can weaken a country’s currency enough to bring a lasting improvement in its trade balance.”

“Monetary policy alone is unlikely to induce the large and persistent devaluations that are needed to bring that result ... especially within a 12-month period,” they said.

With the US presidential election coming in November 2020, Trump is especially focused on the next 12 months, and while he has said no recession is in the cards, he continues to call for more stimulus.

“....WHERE IS THE FEDERAL RESERVE?” the US president tweeted.

In denial

Trump has consistently rejected a growing number of forecasts that his trade war with China and slowing global growth are pitching the US economy toward recession. But he’s also spending a lot of time outlining policies to stave it off.

Speaking to reporters on Tuesday in the Oval Office, Trump said he’s open to a range of possible actions, including a payroll tax cut or bypassing Congress to reduce taxes by indexing capital gains. He repeated his demand that the Federal Reserve slash interest rates to bolster the economy. Yet he also suggested those actions aren’t necessary.

“We’re very far from a recession,” Trump said.

His comments on Tuesday illustrate the balance the White House is trying to strike between touting growth under the Trump administration and laying the groundwork for possible fiscal stimulus if the economy falters.

Currency offset

Tempting as it might be to think a stronger dollar offsets higher US tariffs by making Chinese imports cheaper, the International Monetary Fund says the greenback’s global prevalence tells a different story.

“US importers and consumers are bearing the burden of the tariffs,” IMF Chief Economist Gita Gopinath wrote on Wednesday in a blog post titled ‘Taming the Currency Hype’ with co-authors Gustavo Adler and Luis Cubeddu. “The stronger US currency has had a minimal impact thus far on the dollar prices Chinese exporters receive because of dollar invoicing.”

That runs counter to US President Donald Trump’s assertions that China is paying steep import tariffs, and he’s accused the country of devaluing the yuan to soften the impact. “Our consumer is paying nothing,” Trump tweeted earlier this month.

The IMF said the average US tariff on Chinese goods is up about 10 percentage points since early last year and will climb another 5 points if new levies are enacted as Trump has threatened to do on September 1. Meanwhile, China’s yuan has slid about 10 per cent versus the dollar, “largely as a result of these trade actions and associated uncertainties,” and such flexibility allows it to help buffer trade shocks, the report said.

The post suggests alternative ways to address concerns about trade imbalances that better support global growth, noting that trade tensions are dimming the fund’s global growth outlook. It comes as China’s economy slows amid the escalating trade war and Trump formally labelling Beijing a currency manipulator after the yuan broke the 7 per dollar mark earlier this month.

“Higher bilateral tariffs are unlikely to reduce aggregate trade imbalances, as they mainly divert trade to other countries,” the IMF said. “Instead, they are likely to harm both domestic and global growth by sapping business confidence and investment and disrupting global supply chains, while raising costs for producers and consumers.”

The post echoed themes from the fund’s External Sector Report released in July. The effects of a currency weakening are generally small within a 12-month period, with a 10 per cent depreciation against all currencies improving a country’s trade balance by about 0.3 per cent of gross domestic product on average.