That there is no love lost between president Trump and Fed chair Powell is a well-established fact: having repeatedly bashed both the Federal Reserve and its Chairman for much of of 2018, when the president demanded that the Fed halt its rate hikes and end its balance sheet runoff, Trump was eventually proven to be correct as Powell admitted in late December when the S&P dropped as low as 2,300 and the Fed decided to end its sad attempt at rate normalization. So with Trump was proven right, was that enough for the President? The answer: a resounding no, because as the WSJ report, Trump is now blaming the Fed for holding back the economy and stock market even despite the central bank’s recent decision to do the two things he wanted.
According to the WSJ, the feud between the world’s two most powerful men continues with the president blasting the Fed and Chair Powell at three meetings in the past week alone, telling Republican senators and supporters that if it wasn’t for the central bank’s past rate increases, economic output and stocks would be higher and the U.S. budget deficit would be rising less.
“He was pretty rough,” said one person who was present at one of the meetings.
Trump also blamed Steven Mnuchin for recommending Powell for the top Fed job. “Mnuchin gave me this guy,” Trump said.
But the main highlight took place during a recent phone conversation between Trump and Powell, when according to a WSJ source Trump told the Fed Chair “I guess I’m stuck with you.” The Fed chief took a brief phone call from Trump on March 8, a Fed spokeswoman said when asked about the conversation, declining to elaborate further.
The phone conversation hasn’t been reported prior to the WSJ’s report.
That wasn’t the end of it: the president continued to gripe about Powell during a policy briefing with staffers on an unrelated matter at the White House on Monday. This WSJ source described Trump’s drumbeat of unprompted and critical Fed commentary as the latest point on a recurring list, or “greatest hits,” that Trump likes to raise.
The president’s irritation flared again two weeks ago, when Trump announced he would nominate Fed critic Stephen Moore to the central bank’s board of governors; Moore, who previously was uberhawkish, famously told the NYT in an interview that would cut rates by 50bps immediately if given the chance.
And the final indignity took place last week, when Trump’s top economic adviser, Larry Kudlow, said that the president wanted the Fed to cut its benchmark rate by half a percentage point, effectively reversing rate increases from late last year that Trump had publicly opposed.
And while Kudlow said that the Fed is independent and that he is merely conveying Trump’s wants, not demands, the relentless criticism is complicating Powell’s job by fueling speculation among market participants that the Fed has been caving to political pressure, even though both Powell and other Fed officials uniformly claim this is not the case. In the most dramatic outcome, it could be a prelude to a historic court battle should Trump ever attempt to remove Powell.
In an effort to reduce tensions, Steven Mnuchin, who famously called the Plunge Protection Team on December 23 igniting the biggest market rally since 1987, arranged for Powell and Fed Vice Chairman Richard Clarida to join him for dinner with Trump in the White House residence in early February. Fed and administration officials took steps to ensure the central bank could manage how the public learned about the dinner to minimize interpretations of political interference.
In an interview on 60 Minutes last month, Powell said he doesn’t believe the president has the authority to remove him over policy disagreements and that he would not resign his post if asked to do so by the White House.
So did Trump end up influencing the Fed? After all, Powell’s historic U-turn was so dramatic it shocked even the most sycophantic “Fed pets” amid the financial reporter crowd.
According to the WSJ, the answer is no, and instead what happened is that the market turmoil in December was a critical turning point. When officials met on Dec. 18 and 19, most projected between one and three rate increases in 2019. Yet just 16 days later, in Atlanta, Powell signaled that the Fed would pause rate increases and shift to a more flexible stance on the portfolio runoff, a position endorsed shortly after that by almost every other Fed official.
Trump’s wishes came even closer to being granted during the Fed’s March meeting when most Fed officials projected no rate increases at all this year even if the economy performed as they expected. At the same time, they announced they would slow the process of shrinking their $4 trillion asset portfolio starting in May and that they would end it by October.
So while Trump may not be influencing the Fed, “somehow” the former reality TV star is getting everything he “requested” from Powell. He may also get his rate cut (and QE4 shortly after). All Trump has to do is to push the US economy into recession.
via ZeroHedge News https://ift.tt/2VfWzqf Tyler Durden