Trump’s full-blown jawboning assault on the dollar is escalating, and after telling CNBC yesterday that he is against the Fed hiking rates more in a world in which all other economies have far lower interest rates, and after tweeting this morning that “tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates — Really?”, moments ago CNBC again reported that the president is “said to worry the Fed will raise rates twice this year“, and that aides are advising Trump that the Fed is “doing this right”.
After the news, the US dollar slumped to new session lows amid growing fears that the activist president will be just that, and pull an Erdogan, ordering the central bank to cut rates if not launch QE sooner or later.
Some have wondered if Trump is aware of the outcome his fiscal and monetary policies would lead to, which as Reuters’ John Kemp summarizes, is as follows:
- Policy (1): Tariffs + strong dollar = holds down inflation impact but trade deficit worsens
- Policy (2): Tariffs + weak dollar = more inflation pass-through but trade deficit narrows
It is unclear if Trump is aware that by pushing for a weaker dollar, he could unleash the “Turkey” scenario, where the currency is in freefall, offset by the ambiguous assumption that the economy is still somewhat viable.
In any case, the market does not appear to have taken Trump’s comments to heart, and the number of rate hikes left in 2018 is still just fractionally above 1.5 (i.e., two more hikes), and in fact, as shown in the chart below, is modestly higher on the day.
Meanwhile, as Trump is doing his best to jawbone the dollar lower, gold is enjoying a brief respite from having been pounded to 2018 lows as recently as this morning, and gold futures are posting their biggest increase in more than two weeks.
“President Trump stopped the gold bears in their tracks,” Kitco’s Peter Hug said in a note. Trump’s views “may be the beginning of a bigger policy, whereby the U.S. wants to drive the dollar lower to make U.S. goods less expensive and offset some of the damage caused by reciprocal tariffs being proposed by our trading partners.