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CHART OF THE WEEK: President Trump shows how to lose friends and enrage enemies

28 August 2019

Bob Cunneen, Senior Economist and Portfolio Specialist

Sources: Datastream and @realDonaldTrump, 23 August 2019.

President Trump has provided another instalment in the ‘how to win friends’ saga by twittering about the US Federal Reserve (Fed) Chair Jay Powell and China’s President Xi Jinping. President Trump posed the question on 23 August “who is our bigger enemy, Jay Powell or Chairman Xi?”. President Trump clearly wants both lower US interest rates and a trade deal with China to boost his re-election prospects in 2020.

President Trump’s diplomatic skills are troubling in two ways. Firstly, the US President failed to understand the message delivered by the Fed on 23 August. The Fed’s Chair Powell was actually trying to highlight “favourable” US economic performance. The US economy has seen “solid jobs growth” (blue line) and “rising wages which have been driving robust consumption”. This is evidenced by US retail spending (red line) which is growing at a healthy 3.4% annual pace.

Secondly, the US President’s negotiating skills are more confrontational than constructive. Political pressures to push US interest rates are likely to be resisted by the Fed to maintain their independence. So, the Fed may prove more gradual in lowering US interest rates despite Trump’s tirades and even the US economy’s needs. As for the trade strategy, President Trump’s brinkmanship seems likely to be stonewalled by China’s President, who is prepared for the long march well beyond the 2020 US Presidential elections.


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