President Donald Trump called on the Federal Reserve to “match” what he said China would do to offset economic hardship being caused by tariffs as he sought to draft the U.S. central bank into his simmering trade war.
“China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing,” the president said in a tweet Tuesday.
“If the Federal Reserve ever did a ‘match,’ it would be game over, we win! In any event, China wants a deal!”
His suggestion that the Fed could help him counter China in the countries’ trade war builds on Trump’s repeated efforts to pressure the U.S. central bank to stimulate the U.S. economy, even though growth is solid and unemployment is at a 49-year low. The remarks may also help him deflect blame onto the Fed if the escalating trade dispute causes the U.S. economy to stumble as he seeks reelection in 2020.
The president’s comments will likely feed concerns in other countries over Trump’s willingness to break long-standing norms of international economic diplomacy. The U.S. has long complained about other governments applying political pressure on central banks and argued that Fed policy is driven by domestic economic priorities rather than any international competition.
Fed officials raised interest rates four times last year but have since signaled an extended pause as they wait for a tight labor market to lift inflation that has been persistently too low.
While financial markets expect the Fed to cut interest rates in the next year, Chairman Jerome Powell and his colleagues have indicated they don’t see a strong case for a move either way. They’ve also stressed that they will make moves independent of any political considerations.
Uncertainty caused by the escalating trade dispute has been one cloud on the horizon, with U.S. stocks slumping sharply Monday after China retaliated against import levies that the U.S. imposed last week, even as Trump threatened to do more.
Technology stocks led the S&P 500 and the Nasdaq higher on Tuesday, with U.S. stocks reclaiming some ground lost to Monday’s steep sell-off as investors were heartened by a tonal shift in U.S.-China trade rhetoric.
The Dow Jones Industrial Average rose 207.19 points, or 0.82%, to 25,532.18, the S&P 500 gained 22.56 points, or 0.80%, to 2,834.43 and the Nasdaq Composite added 87.47 points, or 1.14%, to 7,734.49.
Trump moved to reassure markets on Tuesday, saying that the U.S. has “a dialogue ongoing” with China. “I think it’s going to turn out extremely well,” Trump told reporters as he was departing the White House for a trip to Louisiana
Still, four-fifths of economists polled by Bloomberg see a further escalation of tariffs increasing the possibility that the U.S. economy could slip into recession by the end of next year.
The U.S. Trade Representative’s office Monday released a list of about $300 billion worth of Chinese goods including children’s clothing, toys, mobile phones and laptops that Trump has threatened to hit with a 25% tariff.
Treasury Secretary Steven Mnuchin may visit China soon and he wants trade talks to continue, a senior Treasury official told reporters on Tuesday, adding that Trump was planning to meet President Xi Jinping at the Group of 20 meeting at the end of June.
New York Fed President John Williams told Bloomberg Television earlier on Tuesday that the levies were already starting to push up U.S. inflation and will have a greater impact as they rise, though the U.S. economy is in a “good place” right now.
Trump has repeatedly criticized the central bank, urging it to deliver a drastic rate cut and resume bond purchases in an April 30 tweet. That was a reference to the Fed’s quantitative easing campaign in the aftermath of the financial crisis which was deeply unpopular at the time with many of Trump’s fellow Republicans.
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