Trumping the Fed

"I can be a real serious bitch if I don't get what I want."
--Lisa (Weird Science)

After the FOMC voted to lower rates by a quarter this week, stock markets expressed general disappointment that the Fed didn't cut more. President Trump was not happy either, tweeting that he had hoped that the Fed would announce a multi-cut campaign to reduce rates toward the zero bound--similar to what other central banks have been doing.

What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world....

— Donald J. Trump (@realDonaldTrump) July 31, 2019

....As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place - no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!

— Donald J. Trump (@realDonaldTrump) July 31, 2019

Let's be clear. All presidents running for re-election want lower rates ahead of the vote. What makes this president unique is that he is not afraid to admit it in public. His predecessors have generally taken the quiet route--lobbying behind the scenes for low rates or to keep them low prior to the election.

The next day President Trump announced an additional 10% tariff on Chinese goods:

Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal. We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing. More recently, China agreed to...

— Donald J. Trump (@realDonaldTrump) August 1, 2019

...buy agricultural product from the U.S. in large quantities, but did not do so. Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States – this never happened, and many Americans continue to die! Trade talks are continuing, and...

— Donald J. Trump (@realDonaldTrump) August 1, 2019

...during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%...

— Donald J. Trump (@realDonaldTrump) August 1, 2019

Upon learning of the president's intentions early Thursday afternoon, the Dow quickly swung from being up 300 pts on the day to being minus 300 pts on the day.

Trump's stated justification is that China is being sanctioned for the country's refusal to keep its word during past rounds of trade talks. However, it is easy to construe that his real message was to the Fed. Trump knows that the Fed is in the back pocket of financial markets. If he needs to create some market turmoil to get what he wants from the Fed, then he is not opposed to do so.

Trump's actions demonstrate what can occur when control of money is taken away from the people and put in the hands of bureaucrats who are open to political manipulation.

We would not be subject to such brinksmanship under a gold monetary standard.

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