“There’s a game of chicken going on here, and the markets are caught in the middle,” Washington insider and attorney Andy Friedman said late Friday.
Referring to tensions between President Donald Trump and the Federal Reserve over interest rates, the popular speaker said this situation “overlays” the market’s current up-and-down cycle, which is tied to Trump’s vascillation between imposing tariffs and reaching trade deals.
“Trump’s saying, ‘I wish you would cut [rates more]. I will keep raising tariffs and threaten the economy and make you lower rates,’” explained Friedman, author of The Washington Update.
“We do not know if this [approach] will keep the Fed lowering rates,” he added. “At some point, the Fed could say, ‘If we keep lowering rates, we will have inflation’ … and [it] could call Trump’s bluff.”
What might end this game of chicken? “That’s if we get a trade agreement with China,” Friedman said.
As for the imposition of tariffs, “Trump is being strategic about doing them,” he said.
In the short term, the key issue for investors is if Trump’s “back and forth” on trade “forces the Fed to drop rates further,” the Washington insider says.
Looking a bit further out, the dynamics of the 2020 presidential election will then become more important.
Friedman expects “the impending election will prompt [Trump] to reach even a weaker deal [than he might want], so the market can be higher, the economy can be doing well … and he can say his initiatives are working.”
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