Trump slams Fed as Draghi proposes Eurozone stimulus
Liam Sheasby, News Editor
25 Jun 2019, 10:50 a.m.
US President Donald Trump has criticised the Federal Reserve - once again - for raising interest rates at Christmas and refusing to cut them following their most recent committee meeting.
The fresh condemnation comes following Mario Draghi’s stimulus proposals for the Eurozone, in which Draghi suggested the European Central Bank (ECB) could cut interest rates to help counteract economic slowdown. Inflation was recorded at 1.2% in May; below the 1.9% target of the ECB.
Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.— Donald J. Trump (@realDonaldTrump) June 18, 2019
Trump turned to his key outlet, Twitter, to express his unhappiness with the situation, and claimed that America’s gross domestic product (GDP) could be almost 2% higher than it currently is were the Fed willing to compromise and match the ECB cuts.
....Think of what it could have been if the Fed had gotten it right. Thousands of points higher on the Dow, and GDP in the 4’s or even 5’s. Now they stick, like a stubborn child, when we need rates cuts, & easing, to make up for what other countries are doing against us. Blew it!— Donald J. Trump (@realDonaldTrump) June 24, 2019
Not everyone believes the President’s claims however, with Ben White – Chief Economic Correspondent for Politico – arguing that there’s no evidence to support a GDP boost.
There is no evidence whatsoever to suggest GDP would have gotten close to the 4s or 5s. Also the market rallied hard this month because the Fed signaled that it is likely to cut rates in July. https://t.co/V8lzY3qV8O— Ben White (@morningmoneyben) June 24, 2019
There is a degree of hypocrisy present too: Trump is unhappy that the ECB rates might go lower and make the Eurozone more preferential to the USA, but he would be happy enough to do the opposite and undercut Europe.
The US president has repeatedly said he wants both a strong Dollar and a cheap Dollar. The conflicting statements are a smokescreen in reality; the voting public likes the sound of a strong Dollar, but the reality is that a cheaper US Dollar is more competitive. A cheaper Dollar means foreign countries are more likely to buy from America, which in turn helps boost the US economy.
With the tariff ‘war’ between the US and China still ongoing, President Trump’s tactic of using trade as a bargaining chip is perhaps under threat in the event that America becomes less competitive, which could go some way to explaining the sudden furore and repeated contempt for the Federal Reserve leadership.
The next step is likely to be an interest rate cut in July from the Fed. Trump will argue this has come too late, but the criticism is partly tactical: interest rate cuts make lending cheaper, which provides an initial boost to the stock markets and domestic loans, but such a cut also suggests a lack of confidence in the overall economy. This can be interpreted as an indicator of downturn, or even recession, and it could be argued that President Trump’s blame game with the Fed is a way of reassuring investors that the Fed is to blame, not economic under-performance.