Trump suggests Fed 'match' China in any aid on trade-war impact

US President Donald Trump has repeatedly criticised the central bank, urging it to deliver a drastic rate cut and resume bond purchases in an April 30 tweet.
US President Donald Trump has repeatedly criticised the central bank, urging it to deliver a drastic rate cut and resume bond purchases in an April 30 tweet. PHOTO: REUTERS

WASHINGTON (BLOOMBERG) - 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 United States 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 on Tuesday (May 14).

"If the Federal Reserve ever did a 'match', it would be game over, we win! In any event, China wants a deal!"

The President later told an audience in Louisiana that "with a little quantitative easing" US growth would hit 5 per cent, referring to the Fed's emergency bond purchases following the 2008 crisis. The campaign was unpopular with many of Mr Trump's fellow Republicans, who said it would cause a surge in inflation.

His suggestion that the Fed could help him counter China in the countries' trade war builds on Mr Trump's repeated efforts to pressure the central bank to stimulate the US economy, even though growth is solid and unemployment is at a 49-year low. The remarks might also help him deflect blame onto the Fed if the escalating trade dispute causes the US economy to stumble as he seeks re-election in 2020.

The President's comments will likely feed concerns in other countries over Mr Trump's willingness to break longstanding norms of international economic diplomacy. The US 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.

The Fed's quantitative-easing campaign helped drive down the value of the dollar, provoking accusations from Brazil and other countries that the US was waging a currency war on the rest of the world. At the time, the US insisted its unconventional monetary-policy actions were aimed solely at restoring domestic growth.

 
 
 

Mr Trump has repeatedly criticised the central bank, urging it to deliver a drastic rate cut and resume bond purchases in an April 30 tweet. Fed officials raised interest rates four times last year but have since signalled an extended pause as they wait for a tight labour 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 that they do not see a strong case for a move either way. They have 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 US stocks slumping sharply on Monday after China retaliated against import levies that the US imposed last week, even as Mr Trump threatened to do more. The S&P 500 Index rebounded on Tuesday with a 0.8 per cent advance.

Mr Trump had moved to reassure markets on Tuesday, saying the US has "a dialogue ongoing" with China. "I think it's going to turn out extremely well," he told reporters as he was departing the White House for the Louisiana trip.

Former Goldman Sachs chief executive officer Lloyd Blankfein took to Twitter on Tuesday evening to opine on the effectiveness of tariffs, saying they "might be an effective negotiating tool", Still, four-fifths of economists polled by Bloomberg see a further escalation of tariffs increasing the possibility that the US economy could slip into recession by the end of next year.

The US Trade Representative's office on Monday released a list of about US$300 billion (S$410 billion) worth of Chinese goods including children's clothing, toys, mobile phones and laptops that Mr Trump has threatened to hit with a 25 per cent 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 Mr 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 US inflation and will have a greater impact as they rise, though the US economy is in a "good place" right now.