Eye on Asia | Which is scarier: US Fed raising interest rates, or Donald Trump ratcheting up his trade war?
- With the Dow giving up its 2018 gains, the stock market is fizzling as proof that Trump’s policies are winners
- Tame inflation in the US supports the Fed’s current rate policies, which continue the pattern set by the previous Fed chairman
Asia could be excused for feeling a bit “fed up” with Donald Trump’s antics - literally.
The US leader is engaged in an unprecedented tit-for-tat with the Federal Reserve over interest rate hikes. The Fed isn’t just any central bank. It is the keeper of the dollar and Treasury securities that are the core of the global financial system and a key pillar of Asia’s economic model. And now its credibility is potential roadkill, as Trump seeks to flip two different narratives.
One is to dodge the blame for Wall Street’s volatility. The stock market gains that Trump touts ad nauseum as proof that his economic policies are winners, are fizzling. The Dow Jones Industrial Average has now effectively given up its 2018 gains. The other: to pull attention away from the bull market in Trump scandals.
The former issue requires copious cognitive dissonance. With economic growth north of 4 per cent and unemployment south of that level, Fed borrowing costs are arguably too low. One can argue tame inflation supports the Fed’s current target of keeping rates at between 2 per cent and 2.25 per cent. Yet recent jumps in 10-year Treasury yields to seven-year highs suggest that inflation expectations are bubbling up.
Jerome Powell, Trump’s hand-picked Fed chairman, has been anything but “crazy,” as the president calls him.
Since grabbing the monetary reins in February, Powell’s team has tightened modestly twice, continuing a pattern that his predecessor Janet Yellen started in 2015.
