Trump unsettles markets by taking aim at Fed and China

Trump unsettles markets by taking aim at Fed and China

Donald Trump lashed out at China and the US Federal Reserve on Tuesday, unsettling investors worried about mounting risks to the global outlook.

Typically aggressive outbursts by the US president hit equity markets in both the Europe and the US on a pivotal day for the international economy. 

Mr Trump let fly as top American and Chinese officials met in Shanghai in a renewed effort to end their trade war, which has now lasted nearly a year and a half. In Washington, Jay Powell, the Fed chairman, was meeting fellow US monetary policymakers amid high expectations that the US central bank will cut rates on Wednesday for the first time since the financial crisis in order to shield the economy from trouble brewing abroad. 

US stocks opened lower for a second day, alongside a broad decline in European equities, with the continent-wide Stoxx 600 down 1.4 per cent. German stocks fared particularly badly, with the benchmark Dax 30 index falling more than 2 per cent — its heaviest one-day fall since February.

Mr Trump suggested officials in Beijing were not negotiating in good faith and were failing to implement purchases of US farm goods they have been pledging. 

“China is doing very badly, worst year in 27 — was supposed to start buying our agricultural product now — no signs that they are doing so. That is the problem with China, they just don’t come through,” Mr Trump tweeted. “My team is negotiating with them now, but they always change the deal in the end to their benefit.”

Mr Trump’s comments reduced expectations that even limited progress could be made in Shanghai, despite the fact that he dispatched his top team, including Robert Lighthizer, the US trade representative, and Steven Mnuchin, the Treasury secretary, to negotiate with Chinese officials including Liu He, the vice-premier. 

In a widely-criticised challenge to the Fed’s independence, Mr Trump has been loudly pressing it to help the administration in the trade conflict with China by reverting to deep monetary easing. But even though Mr Powell has come around to the need for interest rate cuts this year, after tightening policy in 2018, Mr Trump is still not satisfied with the Fed.

Most economists are expecting the Fed to reduce its main interest rate by 25 basis points, to a target range between 2 and 2.25 per cent, but Mr Trump has been pushing for a much more aggressive step. 

“I’d like to see a large cut, and I’d like to see quantitative tightening immediately stopped,” Mr Trump said on Tuesday. “They moved in my opinion far too early and far too severely, and puts me at somewhat of a disadvantage.”

Mr Trump’s persistent commentary about Fed policy has put the US central bank in a difficult spot, although its officials insist they will not be swayed by White House pressure.

“I don’t think they are being overtly influenced by Trump’s tweets to cut rates, but on the other hand, given that Powell is worried about state of economy and the shock that has hit ironically from the trade war, it seems like he doesn’t want to be the Fed chair that presides over a sharp slowdown in the US economy,” said Seth Carpenter, chief US economist at UBS. 

Scott DiMaggio, co-head of fixed income at AllianceBernstein, added: “They are better off doing what is in their purview and what is best aligned with their forecasts, and they’ve told us they are worried about the external weakness outside of the US permeating into the domestic economy.”

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