The US President infected the central bank with his excessive attention to financial markets

It is never long that comes at last! When fighting for the Office of President in 2016, Donald Trump boasted his ability to boost the US economy up to 3%, but it reached only +2.9% at the best of times when the fiscal stimulus was the strongest. The tax reform efficiency will gradually reduce. So the White House’s forecasts of 3% GDP growth in 2019 look strange amidst the above circumstances. Hey Americans, don’t expect someone to make you happy! Have a good time yourselves!

Not everyone admires Trump. Both before and after the elections. Actually, he doesn’t have to be loved by everyone. Not everyone shows good taste. However, traders do fancy him as the US president is interested in financial markets. They observe him trying to reshape the world with curiosity. No one would tell him: Donald, don’t strike the Chinese boy with a spade or you’ll sweat and catch cold. The President makes independent decisions in these cases. Mostly using a stick. China forgot long ago there still existed carrots.

Under George Bush or Barack Obama, Beijing could easily afford the following conversation:

- Let’s meet at 7 in the park.

- How will I know it’s you?

- I'll not be there.

China could promise the moon and the stars and not keep a promise, but all assumed obligations have to be confirmed now. If you speak of the repeal of benefits for state-owned enterprises, please specify the companies and the volume. If you agree to the yuan’s stability, specify the mechanism. China doesn’t risk reacting to the US persistence with something like

 “Don’t talk to me as if you had a discount for traumatic surgery”.  

But look how markets react to the de-escalation of trading conflicts between the world’s leading economies! Stock indices are growing so fast that one might feel giddy. However, euphoria will fade out any way. Donald Trump himself seems to start realizing what a rally in the stock market and a bubble have in common.  His statement that a deal with China may fail at any time somewhat damped down S&P 500 bulls and the fans of risky assets in general. The president only rubs his hands with pleasure watching the markets react to his tweets. He says, the oil prices are too high, and the black gold collapses. He doubts that a deal with China will be concluded, the stock market collapses. 

The most interesting thing about it is that Trump infected the Fed with his attention to stock indices. Thus, Jerome Powell had to comment on the dependence of the Fed’s decisions on the conjuncture of financial markets. He said, the Fed couldn’t turn a blind eye to volatility and financial conditions! As long as all’s calm and quiet, the Fed will continue to idle on the roadside. Or sleep, if it wishes so. Until the markets say: “Patient, wake up! It’s time to take hypnotic...” Patience, ladies and gentlemen! The main show is ahead!   

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Fed to Trump: a bad example is catching

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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