US president criticizes Fed monetary policy and makes dollar bulls pause for a while

We are all strong until we face our weakness. The US dollar looked like a really big boy, backed up with the high US Treasury yield, strong economy and positive outlook for the US equity market. Anyway, as known, the bigger one is, the harder it drops. Donald Trump seems to be the only person, who is not discouraged by the words, “Another remark like that, and you’ll never need your toothbrush any more”. As easy as it was with OPEC, he can interfere with the Fed and with the whole foreign exchange market as well.

It is easy for them (China and the EU) to raise money, as their currencies are falling down! The Chinese yuan is falling down like a stone over a sheer cliff! It places the USA at a disadvantage. I must admit that the US president is right. Most US corporations, having reported on the second quarter, are blaming the strong dollar, rather than import tariffs or the US trade wars. The USD 6-percent rise since April worsens financial performance, as a significant part of incomes is driven from abroad. How could it be otherwise if the welfare is based on walking over someone else?

However, the concern of exporters is just the tip of the iceberg. Washington desperately needs money. Even the US administration had to admit that it had overestimated the fiscal stimulus. The budget deficit is going to expand faster than it was expected before. During the next ten years, it should boost by another $8 trillion, though in February, it was about a little more than $7 trillion. The USA lacks economic growth to cover the tax reduction.

- Doctor, what is ideal height for my weight?

- Four meters…

I suppose that the US boosted deficit was not the last reason for Donald Trump to criticize the Fed. One of the factors for the extending gap is higher interest payments; the higher will the central bank increase the rate, the wider will be the gap between the US budget spending and income. That is why the US president Trump, “I don’t really – I’m not happy about it.” [about Fed’s monetary normalization]. It’s like, all the White House's representatives are trying like mad to drive the US GDP up, and the Fed wants set them back, hiking the rate all the time! Doesn’t matter that with the current rates of the US inflation and unemployment, they not just may, they need to tighten the US monetary policy. At least to avoid their predecessors’ mistakes and prevent uncontrollable growth of consumer prices in the USA. But, the White House’s leader has his own views on the laws of Economics. He doesn’t like foam in his bath. That’s why he runs it at an angle.

If the Federal Reserve hikes the interest rate, and the US president suggests it shouldn’t, then the central bank just must continue normalization. Its independence is at stake. Anyway, the Fed is not Donald Trump’s girlfriend. It doesn’t have a bad habit of living together with him. The 45th president of the USA goes on being crazy, investors are still feeling like inside a psycho ward. And what is the most important there? The most important is to be the first to wear a lab coat.

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Will Trump Stop the Fed?

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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