Federal Reserve Chair Jerome Powell doesn’t like how President Donald Trump’s trade war is impacting the U.S. economy.
To make matters worse, the central bank has no playbook for how to deal with the current situation, he said in prepared remarks at the Kansas City Fed’s Economic Policy Symposium in Jackson Hole, Wyoming.
[Editor's note: Powell explained: "We have much experience in addressing typical macroeconomic developments under [the Fed's existing policy] framework. But fitting trade policy uncertainty into this framework is a new challenge. Setting trade policy is the business of Congress and the Administration, not that of the Fed. … Moreover, while monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade.”]
Powell had no idea the starkest example would come about an hour after he delivered his speech when Trump announced he would have an afternoon response to China’s threat to impose additional tariffs on $75 billion of American goods.
The stock market, which had been up after Powell spoke, immediately reversed course and was down 1.7% just before noon.
So he and other Fed officials have to draw up their own plan of attack. His suggestion? More interest-rate cuts.
Noticeably missing from his remarks was the phrase “mid-cycle adjustment,” which he and other officials used last month to describe their potentially one-off rate reduction.
Instead, he chose to emphasize that the Fed would “act as appropriate to sustain the expansion.” Bond traders read between the lines to take that as openness to as many cuts as the data justifies.
Two-year Treasury yields fell about 9 basis points, reversing Thursday’s move after a flurry of regional Fed presidents sounded hawkish and gave Powell cover to push back on market expectations.
- On Monday, he tweeted about “the horrendous lack of vision by Jay Powell and the Fed” and said officials should cut rates by 100 basis points.
- On Wednesday, he lamented that “the only problem we have is Jay Powell and the Fed. He’s like a golfer who can’t putt.” He again called for a “BIG CUT,” and then asked “WHERE IS THE FEDERAL RESERVE?”
- On Thursday, after seeing Germany issue negative-yielding 30-year bonds, he complained that “our Federal Reserve does not allow us to do what we must do. They put us at a disadvantage against our competition.”
- On Friday, just about an hour before Powell was scheduled to speak, Trump flipped to encouragement: “Now the Fed can show their stuff!” he tweeted.
The symposium’s theme in 2019 is “Challenges for Monetary Policy,” though the organizers probably didn’t think the U.S. president’s Twitter feed would be such a glaring obstacle. Trump wasted little time analyzing Powell’s remarks: