Donald Trump understandably stole the headlines this week by declaring that a trade deal with China is “almost done.” He boldly heralded it as “the biggest trade deal ever.” As the U.S. prepares for significant employment reports and other economic indicators, the president has intensified his demands on the Federal Reserve, calling for a drastic reduction in interest rates. This push for lower rates comes amid Trump’s ongoing criticism of Jerome Powell, the Federal Reserve Chair, whom he has threatened to replace multiple times.
Back in Washington, Trump paid an unannounced visit to Federal Reserve headquarters. There, he continued to sound the alarm on the extreme cost overruns on the renovation of numerous Fed buildings. His visit came at a pivotal time as tensions were rising around the central bank’s monetary policy and its increasing impact on the health of the U.S. economy.
Trump’s Economic Strategy
…America First economic strategy rests on a foundation of bold action to ensure every American producer…Tariffs He has been loud and clear that he plans to use tariffs as a primary tool to strengthen the U.S. economy. Most importantly, Trump explicitly declared his administration’s intention to establish a 15% reciprocal tariff. Japan will be the ultimate beneficiary of this move. This action is a clear example of his overall pattern when it comes to trade negotiations, in which he uses tariffs as a tool for leverage.
In addition, Trump has gone on record urging the Fed to cut interest rates by a minimum of three percentage points. For starters, he blamed the central bank for losing billions. His view is that these financial losses are the result of their own choice to maintain rates at or near multi-year highs. While his recommendations are suspect, his rhetoric does point to a clear frustration with the Fed’s current expansionary monetary policy. Indeed, he fervently wishes for a more mallable monetary policy.
Next week will be just as important for the U.S. economy. Under Trump’s watch, a number of key employment reports are about to hit, such as the JOLTS Job Openings and the ADP survey of private job creation. These reports will precede the highly anticipated July Nonfarm Payrolls report, which is expected to provide further insight into the labor market’s performance.
Central Bank Dynamics
Though vocal criticism from the White House has been unprecedented, Federal Reserve officials have been undeterred in clinging to their favored monetary policy long course. Christine Lagarde gave a hawkish signal in her press conference last week. Her remarks indicated that the Fed is not going to cave to extreme political or market pressures to pivot on interest rates. Jerome Powell on the eve of one of his regular press conferences explaining what the heck just happened to our economy. He will offer no new economic projections at this shindig.
The relationship between Trump and Powell has soured beyond repair. The president’s incessant public and private calls for Powell’s resignation add color to a more profound rupture, one between the executive branch and the nation’s independent central bank. Trump has openly criticized Powell’s leadership on several occasions. He’s even suggested possible replacements for Powell if the Fed Chair fails to adopt a monetary policy that dovetails with his own economic dreams.
Additionally, the economic data still to come are likely to be dived into more than usual by investors and policymakers alike. Final version of Michigan Consumer Sentiment Index for July comes out on Friday. They will be releasing the ISM Manufacturing PMI for the same month. These indicators will provide critical insights into consumer confidence and manufacturing activity, shaping expectations for future economic performance.
International Trade Relations
In international trade relations, these issues continue to be a hot-button concern. Just the other day Trump said that a deal between the United States and European Union (EU) is nearly completed. Still, tempers remain high as the EU has drawn up a retaliatory package in excess of $100 billion in U.S. goods. This possible next step toward an unpredictable escalation continues to highlight how deeply complicated trade negotiations are becoming in our growing interconnected global economy.
Trump is clearly sailing through turbulent trade waters. At the same time, the EUR/USD currency pair appears poised to resume its longer-term bullish trend following a correction from overbought territory. Investors are understandably characterizing these trends because moves like these in any currency usually measure more hidden and deeper economic sentiments.