WASHINGTON (Reuters) - President Donald Trump has been waging war against the US Federal Reserve for more than a year and asked whether the devaluation of the dollar is his next surprise move, the writer Francis Scotland said in an article in The Hill newspaper.
The writer added that Trump, through many tweets, criticized the Federal Reserve, where he saw this board very hard, and that its president Jerome Powell does not have the courage, and the dollar is very strong.
He stressed that the Fed is not interested in the possibility of taking a proactive approach to the policy Trump wants to bypass China.
However, the Chinese authorities did not indicate that they would bow to US trade demands.
He explains that despite Trump's tweets, Powell and the Federal Reserve have not given Trump what he wants - “aggressive and deflationary monetary policy”.
Recession
Scotland warned that Trump could not raise tariffs again without risking recession, since fiscal stimulus from the US Federal Reserve is not a possibility.
He says the only remaining leverage is the dollar, but any move from Trump to proactively abandon the dollar would be a "nuclear option", an option that could ignite a heinous currency war and a race to the bottom.
Scotland notes that the global recession has reached the US, and capital spending is shrinking.
He adds that it is estimated that the imposition of 30% of duties on Chinese imports is equivalent to a rise in the price of gasoline by $ 2 per gallon.
That is enough to push the US economy into recession, something Trump is aware of.
| The recipe for the Fed's policy is clear: cut interest rates enough to sharpen the yield curve (Reuters) |
Strong currency
US Treasury Secretary Stephen Menoshin has emphasized a strong dollar policy, but Trump is accustomed to business dealings and does not owe taboos that he believes do not serve his interests.
He says Trump has long criticized the EU for the low euro, and has accused China of deliberately keeping its yuan currency around the world low, to make its exports cheaper and thus increase trade imbalances.
The recipe for the Fed's policy is clear: to cut interest rates enough to sharpen the yield curve, explaining that borrowing because of the rate cut may not move much, but the impact on the dollar can be significant.
The yield on US bonds is usually ominous, but Powell may wait for the global recession to weaken domestic indices such as spending and jobs before he becomes more aggressive.
In August, yields on US 30-year bonds (long-term bonds) hit the lowest levels amid fears of a possible global recession.
| Powell may wait for global recession to weaken domestic indices such as spending and jobs before becoming more aggressive (Reuters) |
Complicated situation
Scotland says the Fed faces a complicated situation, but Powell is moving in the right direction, albeit slowly, which is certainly too slow for Trump.
He adds that capital markets have reached critical levels and that there is much uncertainty in the world apart from trade negotiations between the US and China.
The author believes that no one expects a business deal, and it seems that the Chinese are preparing themselves to face difficult times.
Trump has already described the economic weakness caused by tariffs as a price worth paying for fair trade.
The writer says that the biggest surprise may be the announcement of the two sides to reach an understanding, which would lift the pressure on Trump to resort to the "nuclear option."