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Jim Cramer: Trump Risks Recession to Force Fed Rate Cut

(Dollar Photo Club)

By    |   Thursday, 22 August 2019 02:44 PM

Investment guru Jim Cramer warns that President Donald Trump appears to be willing to use the U.S.-China trade war and risk recession to try to force Federal Reserve Chairman Jerome Powell to cut interest rates again.

Many analysts blame slowing economies overseas and the uncertainty created by Trump's trade war with China for undercutting business confidence and denting U.S. growth.

Even with the election coming up next year, Trump is indicating that he’s prepared to risk a recession and “it’s Powell’s job to keep us out,” Cramer told CNBC.

“The president is saying, ‘We’ll take it, we can handle it,’” Cramer said. “The president is not backing down,” said Cramer.

Cramer spoke as Fed policymakers, economists and other officials are convening at an annual monetary policy retreat in Jackson Hole, Wyoming, this week, a bucolic backdrop for a tough discussion about whether central bankers can hold off the next recession, Reuters reported.

Interest rate cuts can take months to spur growth. Still, policymakers’ verbal commitment to sustain the longest U.S. economic expansion on record, backed up by the recent rate cut, probably made it a bit cheaper for businesses and consumers to borrow this year.

Meanwhile on Thursday, U.S. manufacturing industries recorded their first month of contraction in almost a decade amid concerns about whether the U.S.-China trade conflict would tip the economy into a recession, a private survey showed.

For his part, Trump said U.S. economic growth could be record-setting if the Fed would only lower interest rates further, as reports on Thursday painted a decidedly mixed picture of the nation's economy, Reuters reported.

"The Economy is doing really well. The Federal Reserve can easily make it Record Setting," Trump said on Twitter.

The government on Thursday said initial claims for jobless benefits fell sharply last week in a show of labor market strength. But another report showed the factory sector was contracting for the first time in almost a decade, and yields in the U.S. Treasury market again flashed a warning sign of a potential recession brewing.

After a three-year drive to tighten monetary policy that ran through last year, the U.S. central bank reversed direction last month with a quarter-percentage point rate reduction - the first cut since 2008.

Trump has said repeatedly that the Fed pushed borrowing costs up too high and has been too slow to lower them, and that the resulting strength of the dollar was making it hard for U.S. manufacturers to compete in global markets.

This week, he called on Fed officials to slash rates by at least a full point.

That's the type of move usually reserved for a crumbling economy, but Trump and other White House officials continue to say the economy is strong, pointing to solid numbers for retail sales and the job market.

On Twitter on Thursday, Trump lamented the relatively high level of U.S. rates compared with some global competitors, noting that yields on 30-year bonds in Germany are negative.

"Germany competes with the USA. Our Federal Reserve does not allow us to do what we must do," he said on Twitter. "They move like quicksand. Fight or go home!"

What remains unclear is whether Fed rate cuts alone can calm markets’ recession fears, which have ramped up amid a recent escalation of the U.S.-China trade war, and convince enough investors that their elusive inflation goal is achievable.

“There’s an unspoken realization of at least most market participants that whatever rate cuts the Fed decides on - or even if the Fed decides to embark on QE - it’s not going to be an adequate countervailing force to tariffs,” said Kristina Hooper, chief global market strategist at Invesco. QE, or quantitative easing, refers to the Fed buying bonds to support the economy as it did after the 2008 global financial crisis.

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Investment guru Jim Cramer warns that President Donald Trump appears to be willing to use the U.S.-China trade war and risk recession to try to force Federal Reserve Chairman Jerome Powell to cut interest rates again.
jim cramer, trump, recession, fed, rate, cut
Thursday, 22 August 2019 02:44 PM
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