Each morning, Nicolas Barré decrypts one of the most important economic news of the day.
It's euphoria on Wall Street. The American Stock Exchange breaks records. What's happening ?
And the boss of the US central bank, Jerome Powell, the bane of Donald Trump - he keeps criticizing him - planchait yesterday before the US Congress. And these are his statements that ignited Wall Street. Powell has indeed announced an upcoming drop in interest rates, which is good for stocks. As a result, the S & P 500 index, which is the most representative of the US stock market, has passed the 3,000 points for the first time in its history. For once, Donald Trump, who fervently follows the yoyos of the Stock Exchange, may be happy with the boss of the Federal Reserve.
That said, this announced drop in the rent of money is not a sign of a healthy economy
That's the paradox, you're right. Why is the US central bank considering lowering its interest rates? To support the economy, because it sees clouds coming, because the risks accumulate. This is what the head of the central bank explained to the elected representatives of the Congress by drawing the landscape of the global economy as he sees it evolve in the coming months. What he sees, he said, is first and foremost a slowdown in the major US partner economies.
Yesterday, for example, the European Commission published its own forecasts: 1.2% growth expected this year in the euro area, against 1.9% last year and 2.4% the year before. It is therefore a net slowdown. Same thing in China, the other big trading partner of the United States. Finally the boss of the US central bank cited two other headwinds: the trade war and Brexit. In short, in this context, the US economy needs support.
So that's what the central bank will bring. But why is Donald Trump so strict about him?
Because he believes that the boss of the central bank is not doing enough to drive the economy to his advantage. Trump has only one date in mind: November 3, 2020, the day he hopes to be his re-election. But the US presidential story shows that the outgoing president is almost always re-elected if the economy is in good shape in the year of the election. The two most important factors are job creations - they are pretty good at the moment, 225,000 jobs created in June, the best month since the beginning of the year - and the price per gallon of gas.
That's why he's obsessed with oil prices. Trump expects the Federal Reserve boss to lead the world's largest economy according to this political calendar. This is of course not his role but of course Trump does not care. It is about re-election at any price. Objectively, the programmed drop in interest rates will play in his favor. If this scenario is confirmed, he has a good chance of a second term.