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Fed's commitment to act upstaged by Trump's furor

EconomyAug 23, 2019 05:38PM ET
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© Reuters. Fed Chair Jerome Powell and Governor of the Bank of England, Mark Carney, during the three-day "Challenges for Monetary Policy" conference in Jackson Hole

By Howard Schneider, Ann Saphir and Trevor Hunnicutt

JACKSON HOLE, Wyo. (Reuters) - Federal Reserve Chair Jerome Powell said the central bank would "act as appropriate" to keep the U.S. economy healthy in a deteriorating global economy, but stopped short of committing to rapid-fire rate cuts and drew fire from President Donald Trump.

Powell had barely completed a key Friday morning speech when Trump ratcheted up his war of words against both the Fed chair he appointed, and with China, which earlier on Friday had retaliated to U.S. tariffs with its own import taxes on American crude oil, agricultural products and small aircraft.

The rapid escalation, which tanked stock markets and drove bond yields lower even before Trump raised the ante with additional tariffs on China, could force the Fed to cut rates to keep the 10-year expansion under way.

Indeed, data reported as Powell was speaking on Friday showed further deterioration in the U.S. housing market, on the heels of figures earlier in the week showing weakness in the manufacturing sector.

But the message from both Powell and his second in command, vice chair Richard Clarida, was that while the Fed may be willing to cut to protect the recovery, it made no promises.

"We take our policy decisions one meeting at a time," Clarida said late Friday afternoon, after Wall Street trading had closed with key indexes down from 2% to 3%.

The Fed cut rates for the first time in more than a decade last month, backing Powell's verbal commitment to sustain the expansion with action. Powell on Friday made clear that commitment is still in place in a speech he gave at an annual Fed retreat at a Jackson Hole valley resort set against the Grand Teton mountains.

He said there are "significant" risks to the economy, including the trade dispute, the chaotic British exit from the European Union, tension in Hong Kong and signs of a global economic slowdown.

But he also said the domestic U.S. economy is in a "favorable place" now and he stressed limits to the Fed's ability to respond to the trade issues. He also said officials need to "look through" short-term turbulence, and stopped short of endorsing or signaling the pace and depth of rate cuts markets widely expect and that Trump has demanded.

There are "no recent precedents to guide any policy response to the current situation," Powell said, adding that monetary policy "cannot provide a settled rulebook for international trade."

The U.S. president fumed about the Fed doing "NOTHING" in a series of tweets and asked who is "our bigger enemy" between Powell and China's President Xi Jinping. Markets swung when he added that "our great American companies are hereby ordered to immediately start looking for an alternative to China."

Global stock markets fell, with the U.S. S&P 500 index closing down more than 2%. U.S. benchmark Treasury yields fell to their lowest level in a week and the dollar declined broadly.

Later on Friday Trump announced he was raising tariff rates on a range of Chinese goods by an additional five percentage points.

Fed officials say tariffs and trade tension are causing businesses to put off spending.

"It's pretty clear to me that Powell was sending a message that if you are so concerned about the economy, lowering rates is not going to help you," said Craig Bishop, lead strategist of the fixed income group at RBC Wealth Management. "You need to do something about trade. That's not a message Trump gets."

DIVIDED FED, ANGRY TRUMP, A NERVOUS WORLD

The trade war has left world central bankers here on edge as they also try to navigate a global slowdown many attribute to Trump's trade tactics, which they worry may have lasting repercussions.

"Without question the euphemism of 'trade tensions' does not do justice to the scale of the impact of recent trade actions, actual and potential, and to some extent the fundamental challenge to the nature of the trading system," Bank of England Governor Mark Carney said during a luncheon speech here.

Renewed U.S.-China trade tensions and pressure from the White House complicate the Fed's job going into its Sept. 17-18 rate-setting meeting. Policymakers were already divided over whether to head off economic fears with significant further rate cuts or to stand pat because people are still finding jobs, taking home fatter paychecks and spending money.

No matter what course Powell chooses, it is clear from the minutes of the Fed's most recent meeting released Wednesday and from the range of comments from policymakers also in attendance here that the chair lacks a broad consensus among his colleagues about the appropriate course of action.

Earlier on Friday, St. Louis Federal Reserve Bank President James Bullard told Bloomberg TV the policy-setting Federal Open Market Committee would have a "robust debate" about cutting U.S. interest rates by a half percentage point at its next policy meeting in September.

Bullard, who has long advocated for lower rates to counteract tame inflation, said he is troubled by signs of a slowdown coming from the bond market. He is referring to the relative decline in long-term bond yields, called an "inversion" of the Treasury yield curve, that has preceded recessions.

He said he is "not interested" in testing the theory "that this time is different" with regard to interpreting the bond market's signal.

Meanwhile, Cleveland Federal Reserve President Loretta Mester, who did not support the Fed's rate cut last month, said she is not yet convinced of the need to cut rates further.

"At this point, if the economy continues where it is, I would probably say we should keep things the way they are," Mester told CNBC. "But, I am very attuned to the downside risks to this economy."

The Bullard-Mester divide is emblematic of the wide range of opinion inside the Fed's rate-setting committee, which voted 8-2 to cut rates on July 31 for the first time in a decade. That tally did not fully capture the disapproval of the move by those without a vote at the meeting, including Mester.

And, of course, there is Trump. He has been unrelenting in his demands that the Fed cut rates, in part to help take some of the wind out of a strong U.S. dollar that he sees hurting U.S. exports.

Fed's commitment to act upstaged by Trump's furor
 

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Jeff Chevalier
Jeff Chevalier Aug 23, 2019 5:50PM ET
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I think they meant to say Trump's Fuhrer....
ELVIZ Of GaZ and OiLz
HotGaZ Aug 23, 2019 5:34PM ET
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I wonder who had the $SPY puts in his inner circle.  Too well timed.
Chris Sundo
Chris Sundo Aug 23, 2019 3:46PM ET
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Trump & Powell are like a partnership, they work as a team each upholding their specialty and not like enemies (Trump was wondering). One partner should not have to make up for the other partner's failing policies. Trump's failing tarriff policies telling the story. Trump is clued out 'as usual'. --- Look for USA imploding until Nov 2020. === Putin planted Trump to weaken the West and still free portion of the World. --- Who better to plant than a divider who causes chaos, dismantles trade partnerships, denies global warming, dismantles the EPA, offends 88% of the population (50% are women + 33% are foreign ethnic), offends trade partners with tariffs, yells on stage about taxing the ******out of one trade partner, can't control his twitter finger, acts insensitive in social settings, etc.
gordon gamwell
RetiredIT Aug 23, 2019 3:34PM ET
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Another Progressive idea is that the Fed should only be able to buy Treasury bonds in times of war.
gordon gamwell
RetiredIT Aug 23, 2019 3:32PM ET
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Accommodation does not help our economy now.  It only helps the rich get richer and the middle class get poorer. We progressives need to limit the power of the Fed to not have authority to lower rates below the rate of inflation.  When the Fed lowers rates below the rate of inflation it only helps the rich and hurts the poor and middle class.
Al Vlaj
alvlaj Aug 23, 2019 3:32PM ET
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I’ll go you one further. The inflation rate is actually MUCH higher than what is reported. The calculation is way off. Cost of living includes food and energy. Cost of services, education, etc is WAY up
gordon gamwell
RetiredIT Aug 23, 2019 3:19PM ET
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In the 1990's the Fed lowered the rate from 5.5 percent down to 3.0 percent.  Not from 2.25 to zero.  The Fed needs to raise rates not lower them.
Andrea Bisi
Andrea Bisi Aug 23, 2019 3:07PM ET
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there's no more cash in pocket for company who moved back in us theyr foreign dollar! market it's certainly expensive compared to Europe (thought we are slowing heavily in Europe)Trump it's in a very bad situation lose lose one. if it go ahead with tariff he will never bend the Chinese people. what will he do ? he will start a real back then? really an unaffordable unreliable persone. a compulsive lier.
Andrea Bisi
Andrea Bisi Aug 23, 2019 3:07PM ET
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in the meanwhile all this fear of war will cool down retail sales. when the labour will be affected... this time nobody will support US as they did in 2009
Michael Kim
Michael Kim Aug 23, 2019 2:38PM ET
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Problem in my view is U.S. is trying to catch two rabbits at one hand.r.r.1. Huawei national security; President Xi can not or unwilling to override Ren Zenfei chairman of Huawei.r.r.2. Quota! trade quota!; right time, right place, and right attitude?.
Michael Kim
Michael Kim Aug 23, 2019 2:33PM ET
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2019 1 H GDP growth rate was 2.6% that is higher than 2.5% 20 year average .An expanding economy is above 0.1%. A contracting economy is minus 0.1%. Normally you are not cutting Fed fund rate 0.25% the fact growth slowed from 3.1% to 2.1% in 2Q 2019. Proof; Japan and German negative rate.
Jon Bal
Jon Bal Aug 23, 2019 1:29PM ET
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what gives? i just read a tweet that we have the best economy..must be fake markets
chris cp
chris cp Aug 23, 2019 1:28PM ET
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Has Trump really made the America Great Again?  Or has Trump changed the Great America?
Mike Roddy
Mike Roddy Aug 23, 2019 1:23PM ET
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a big rate cut would passefy the market in the short term but also lead to the greatest depression we've ever know in the long term. I don't think Trump really cares what happens to the economy as long as he looks good for the next election.
Jason Zou
Jason Zou Aug 23, 2019 1:17PM ET
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Good or bad, friend or enemy, flip or flap, today or tomorrow, all just a twitter a moment by a MAGA blah
Al Vlaj
alvlaj Aug 23, 2019 1:07PM ET
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I truly believe that Powell recognizes the paramount importance of Central Bank independence. So much so that they would have to go out of their when possible to contradict a whining politician, even in the face of the need for a cut. The DJT would keep his yammer shut, i believe the Fed would have been on an accomodation program to curb the negatics effects of a tariff war. Truth is DJT doesnt care about a cut. He cares about two things only here. First, showing (though failing) that he has absolute control over an independent government body. Second, always having a scapegoat to blame but himself for his base, who is too blind to see that they are being used a pawns and poker chips.
Tony Searight
Tony Searight Aug 23, 2019 1:02PM ET
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Trump knows all!....lol
Al Vlaj
alvlaj Aug 23, 2019 1:02PM ET
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Well, he did declare himself the “chosen one” ...
Rita Brattkus
Rita Brattkus Aug 23, 2019 1:01PM ET
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where are my comments? not allowed to support my president?
Al Vlaj
alvlaj Aug 23, 2019 1:01PM ET
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You mean your fuh rer.
Rita Brattkus
Rita Brattkus Aug 23, 2019 1:00PM ET
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Trump knows what he is doing. fed should cut rates by half percent. He wants to please democrats.
Gilbert Schwob
Gilbert Schwob Aug 23, 2019 1:00PM ET
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No ne should try to impose wishful thinking to reality as it always ends badly. As, p. ex., payroll which found that half a millionwere not on it! Economy shows upowith 6 monthsdelay in average.
Berry Blu
Berry Blu Aug 23, 2019 12:47PM ET
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Anyone realise that all the policies and decisions made by Trump is not for the best of Americans but for his own agenda.  Remember George Bush with his ambition to protect his interest in oil and lied about Iraqis mass destruction weapon?   Can anyone see the pattern here?
roger skebelsky
roger skebelsky Aug 23, 2019 12:22PM ET
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Trump knows nothing about nothing except how to creat chaos, and insider trading for his buddies.
Jun Man
Jun Man Aug 23, 2019 12:22PM ET
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Trump actually knows a lot about nothing...
Darry Kim
Darry Kim Aug 23, 2019 11:40AM ET
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It is clear why the United States cannot win the trade war with China. The Chinese are now ready to die for the Communist Party and China. There is no one who dares not die for China. Does this mean an economic crisis? The stock market crashed? They don't care. The United States is too gentle, rational and business-oriented to them. In addition, most Americans expect China to eventually overtake the United States. The US is weak and not ready to fight. People are just a peaceful world, a beautiful society where unicorns run around, and no one is alarming that the US should remain at the top. China is prepared to die. Can the current US beat that China?
Show previous replies (3)
Jeff Chevalier
Jeff Chevalier Aug 23, 2019 11:40AM ET
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So, what you're saying is that the US is a whining 5 year old that cheats to win? And whining Trump is leading the charge.
Eddie Lopez
Eddie Lopez Aug 23, 2019 11:40AM ET
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I'm saying China is using HUMANS for cheep labor without considering human safety and empathy. this is why Hong Kong is fighting the extradition law. communist China it's a global threat two individual human rights to be Alive.
Darry Kim
Darry Kim Aug 23, 2019 11:40AM ET
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The United States must win this trade war. It must be so.
Eddie Lopez
Eddie Lopez Aug 23, 2019 11:40AM ET
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why you think products are cheap cost that come from China? because HUMAN life is being abused for cheep products. the tariff plan is deeper then just what you see. in the long run it allows products to be priced accurately and the human employees paid properly.
Al Vlaj
alvlaj Aug 23, 2019 11:40AM ET
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Eddie Lopezi agree with you on the human right issue, but the reality is this administration could not care less. That is not what this tariff war is about at all. If it were about human rights and worker conditions we would not be pursuing a trade deal with Mexico. We would have a trariff war with Vietnam, Brazil, India and all the countries that will benefit from the result of this trade war with China. The reality is that this is ONLY about DJT appealing to his base promising (for votes alone) that the jobs will come back to the US when they simply will not. Why? Tariff wars dont work like that. If it were really about human rights, we would embargo, but even that would not bring the jobs back and it would devastate out country. And I mean DEVASTATE. Those jobs are gone for good. He is appealing to wishful thinking knowing it cant be accomplished.
Michael Angelo
Michael Angelo Aug 23, 2019 11:02AM ET
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Go to Vegas or trade with T®ump policies. Unrivaled capacity to create CH@OS. I remember at the beginning when some supporters use to b®ag the negotiation expertise of the chip munk. Right mow is blaming Powell.
Tom OKray
Tom OKray Aug 23, 2019 10:23AM ET
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Pretty much the same talk as has taken place over the last what six months. Valid points all around.
Talha Mughal
Talha Mughal Aug 23, 2019 10:21AM ET
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its effect bullish or bearish
Thomas Zadek
Thomas Zadek Aug 23, 2019 10:21AM ET
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I would rather have a strong economy not needing a rate cut than a weak one that does. The positives of a .25% cut would last a few days. Mr. Fed, please keep your gun dry and the cuts in reserve for when they are truly needed.
Mart Bab
Rubberduck1973 Aug 23, 2019 10:21AM ET
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Kenny Hải Hùng
Kenny Hải Hùng Aug 23, 2019 10:21AM ET
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Bearish effect
Henrikus Winastwan
Henrikus Winastwan Aug 23, 2019 10:20AM ET
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agree
Toto Lau
Toto Lau Aug 23, 2019 10:18AM ET
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Bearish
Precious ohakosim
Precious ohakosim Aug 23, 2019 10:18AM ET
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how long is the speech
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