I don’t know what the president expected Jay Powell to do.
The Fed chairman’s remarks at the Jackson Hole Federal Reserve conference on Friday were in line with his comments after July’s Fed meeting, and with the minutes from that meeting. There are increasingly worrying signs in the global economy, he said. Global trade tensions are one factor worsening the outlook. And the Fed stands ready to pursue appropriate policy adjustments to support the economy as needed.
The financial markets took Powell’s statement as mildly dovish. Bond yields fell a little, stocks rose a little, the dollar fell a little — all signs the speech gave market participants a little more confidence the Fed would pursue at least a couple more interest rate cuts. But mostly, the speech seemed to contain what people expected it to contain.
his public jawboning of the Fed appears to be having little effect on monetary policy. The main way the president has been affecting monetary policy has been by taking concrete policy actions that hurt the economic outlook, which changes the parameters the Fed considers as it decides how to set interest rates. The bigger a mess Trump makes, the more rate cuts he can get, but not enough rate cuts to actually offset the mess. And this is making him angry.
The main lever he has left is his trade policy itself. If he wanted less China-related economic drag, he could back off the tariff threats. And indeed, he did a little of that a couple of weeks ago, delaying some of the new tariffs he announced for September 1 so they won’t take effect until December 15. His administration said this delay was for national security reasons, though he said himself it was because he didn’t want to interfere with the Christmas shopping season.
As Jonathan Chait notes, Xi Jinping doesn’t have to worry about reelection like Trump does.
With a China less willing to back down and a trade war maybe too far along to stop, the president is backed into a corner. He may feel he can’t save the economy by folding. And so he may follow his instinct — one of the few consistent policy views he has expressed for decades — that protectionism is good for the economy, and that despite what the markets and his advisers are telling him, trade wars are good and easy to win and more tariffs and more disruption will only mean more winning for the U.S.
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