TencentSecurities, August 22, well-known financial media in the United StatesTheStreetThe article entitled "with the Jackson Hole summit approaching, the Fed is Trump's savior, not his enemy," is summarized as follows:
The economic policies pursued by President Donald Trump have created millions of jobs and fuelled US economic growth for a decade, the longest growth cycle in the country's history. However, in some key areas, his policy ended in failure.
Mr Trump implemented a $1.5 trillion tax reform in late 2017, which has so far failed to create the 3 per cent long-term economic growth he promised. Instead, it has pushed up the federal government's annual budget deficit and pushed US public debt through the $22 trillion mark.
In addition, Mr Trump has heightened international trade tensions, undermined the confidence of business executives and US families, and helped trigger a manufacturing slowdown.
So when Trump faces the 2020 presidential election, a fictional ghost appears: the Federal Reserve.
Clean up the mess for the child
As we all know, the Fed's two major missions are to keep unemployment low and to prevent inflation from spiralling out of control. As the central bank of the United States, the Fed's monetary policy committee consists of six economists, as well as four lawyers and business leaders. Obviously, although they hold important positions, these people are all human beings, and they will make mistakes if they are human.
However, as Fed chairman Jerome Powell Powell and colleagues prepare for the annual global central bank meeting in Jackson Hole, Wyoming, from Thursday to Saturday, a growing number of economists say investors' recent anxiety is mainly due to Mr Trump's own mistakes, while the Fed is just trying to contain the damage.
Scott Anderson, chief economist at BNP Paribas, a subsidiary of BNP Paribas, points out that Fed officials are like adults at home, having to clean up the mess of a 2-year-old who has been playing all day.
This view is diametrically opposed to Trump's view of the Fed. Since taking office, Mr Trump has pointed the finger at the Fed, accusing the central bank of setting excessively high interest rates and hampering US economic growth.
As next year's election approaches, it is crucial for wavering American voters who have not yet decided whether to support Mr Trump's re-election who is responsible for the US economic slowdown.
To Trump's frustration, despite a series of boosting measures, US economic growth is expected to slow to 2.4 per cent this year, a long way from the 3 per cent he had promised. In fact, even last year, when tax reform measures brought considerable windfalls to American businesses and households, the US economy grew by only 2.9 per cent. According to data released by data provider FactSet, US economic growth is expected to slow to 1.8 per cent in 2020.
Tax reform failed to accelerate economic growth
Last week, the US bond market showed a typical recession warning signal: the yield on the 10-year Treasury note briefly fell below the yield on the two-year Treasury note. Typically, the yield on 10-year Treasuries is higher than that of two-year bonds, as investors want more compensation for the additional costs and risks of holding longer-term Treasuries.
Last Wednesday,Dow JonesThe industrial average plunged 800 points, or 3.1%, the biggest one-day drop so far this year.
Beth Ann Bovino, chief US economist at Standard & Poor's, an international rating agency, pointed out that the tax reform measures are likely to fail to stimulate faster growth in the US economy, as executives use most of the windfall generated by the move to pay dividends to shareholders and to buy back shares. This means that executives are not investing in future growth incentives, such as building new factories, buying new equipment, upgrading technology or hiring more staff.
This reality may reflect a big policy mistake made by Mr Trump: after years of economic growth, he still chose to inject large amounts of cash into the economy, leaving executives unsure how long the good days would last. Usually, the government carries out a massive fiscal stimulus package after a recession.
Nowadays, tax reform is a thing of the past. Trump has mentioned it only five times in his tweets so far this year, compared with 43 last year, according to the website searchtrumpstweets.com.
In a statement issued last week, S & P noted that "the unpredictability of trade and the deteriorating global context are the main reasons why investors should be highly vigilant."
Most people believe that, given the duration of growth, the current state of the US economy is still very good. The unemployment rate is 3.7%, close to the lowest level in half a century. Inflation is 1.6 per cent, below the Fed's target of 2 per cent.
Recently, however, the resilience of the US economy may only reflect the Fed's willingness to support the economy.
Won't be a scapegoat.
Last month, the Federal Reserve cut interest rates for the first time in 11 years. Traders in the Chicago futures market are betting that the Fed will cut interest rates at least three more times this year.
Mr Trump, however, cannot wait.
On Monday, he reiterated in his tweet that he thought the fed should cut its benchmark interest rate by 100 basis points, or 1%, within a short period of time, while considering some more quantitative easing. "if the Fed does this, the US economy will get better, and the global economy will get a rapid and massive boost," Trump wrote. "it's good for everyone!"
In his tweet, he also accused the Fed and Powell of being "extremely short-sighted".
Karen Petrou, managing partner of Federal Financial Analytics, a regulatory analysis firm in Washington, believes that shelling the Fed may reflect Mr Trump's political wisdom rather than economic reality. The economist claimed that every time the stock market fell, Trump could "blame the Fed".
In the face of repeated naming and criticism from the president, Powell reportedly insisted that he would not be the president's scapegoat and repeatedly said that the Fed was independent and that he would not leave quietly if Trump tried to fire him. However, at a news conference last month, the central bank chairman acknowledged that the Fed must respond to policies that threaten US economic growth.
Economists at TS Lombard, an economic research firm, point out that "if the Fed does not take action to maintain market interest rates, the possibility of a recession will certainly rise."
Janet Yellen, a former Fed chair, said she thought Powell was "ignoring pressure from the president".
By contrast, stock market investors may hope that Powell will not ignore the pressure from the president's policies. (Mina)