Tags: trump | regrets | powell | fed | chair

2 Most Dangerous Threats: Economic Overheating and Fed Policy Error

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Wednesday, 24 October 2018 09:15 AM Current | Bio | Archive

President Donald Trump apparently regrets appointing Jerome Powell to run the Federal Reserve.

In an interview given to The Wall Street Journal, President Trump escalated his attacks on Federal Reserve Chairman Jerome Powell, saying the Fed Chair threatened U.S. economic growth and appeared to enjoy raising interest rates.

Trump acknowledged the independence the Fed has long enjoyed in setting economic policy, while also making clear he was intentionally sending a direct message to Mr. Powell that he wanted lower interest rates.

“Every time we do something great, he raises the interest rates,” Trump told the Journal, adding that Mr. Powell “almost looks like he’s happy raising interest rates.”

Mr. Trump also said it was “too early to say, but maybe” he regrets nominating Mr. Powell.

Asked an open-ended question about what he viewed as the biggest risks to the economy, Mr. Trump gave a single answer: The Fed.

“To me the Fed is the biggest risk, because I think interest rates are being raised too quickly,” Trump told the Journal.

Mr. Trump said that higher interest rates add to the debt and would act as a drag on economic growth. He said he preferred to take the savings from lower interest rates to pay down the debt. “But how do you do that when he keeps raising interest rates on you?”

White House attacks on the Fed could take on more significance if they’re echoed by congressional lawmakers because the Fed ultimately answers to Capitol Hill. That hasn’t occurred since Mr. Trump took office.

About risk to the U.S. economy, I personally think that "overheating" or policy error are the two greatest threats to any economy at any time.

Atlanta Fed President Bostic, a FOMC voting member this year, gave an interesting speech yesterday on the subject saying that high-pressure labor markets lead to recession.

What will come out of all this, only time can tell. Nevertheless, critics worry that Mr. Trump's continued attacks on the Fed chair could undermine investor confidence.

Are Sanctions Against Saudi Arabia Coming?

President Trump has signaled displeasure at the poor quality of the Saudi cover-up of the death of the journalist Jamal Khashoggi in Istanbul, Turkey.

Mr. Trump has also suggested that Congress may take the lead on any sanctions against Saudi Arabia. Congress has seemed more eager to sanction Saudi Arabia than President Trump has been.

Saudi Arabia had initially threatened retaliation for any sanctions, but the pledge of the Saudi Energy Minister not to politicize the oil production and perhaps the risk that a higher oil price may upset President Trump even further has seen Brent and WTI crude oil prices staying below $80 and $70 dollars per barrel, respectively.

Italy Defies European Union Spending Rules

The European Commission told Italy to go back and do its math homework again. The Italian budget has been rejected. The Italian response is basically that the European Union (EU) is not being creative enough when it comes to math homework.

This disagreement comes alongside already existing projections that show that France will overtake Italy in having the largest public sector debt in the Eurozone by the end of this year.

France was of course one of the first countries to break the budget rules of the Eurozone. The other country being Germany.

Naturally, neither France nor Germany was told to do their math homework again.

The problem with this situation is that both sides have a point.

The European Union (EU) is right. Italy’s debt arithmetic does no add up in an especially credible way.

Italy is right, the European Union (EU) is being inconsistent.

The yo-yo of Italian bond yields saw them rising slightly on the news, but the vast wealth of Italy means that they have the money to mobilize if they need to and that makes default very unlikely indeed, which is of course for investors very important to keep in mind.

Brexit

The interminable tedious process of separating the United Kingdom (UK) from the European Union (EU), which is apparently 95 percent done, lurches on.

The UK Prime Minister is to meet members of the Governing conservative party and the vexed question of the Northern Ireland border is to be discussed.

We are still nowhere near the last minute on this and as the deal is only likely to be done at the last minute, this means we are not especially near to the deal being done.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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HansParisis
About risk to the U.S. economy, I personally think that "overheating" or policy error are the two great threats to any economy at any time.
trump, regrets, powell, fed, chair
753
2018-15-24
Wednesday, 24 October 2018 09:15 AM
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