When President Trump selected Jerome Hayden Powell as the Chairman of the Federal Reserve, market participants were certain that he would continue to follow a path not far from his predecessor. However, as the Fed continues to tighten monetary policy, the President has already spoken his mind that he does not appreciate these rate hikes.
It’s not all politics and there is valid concern that with each additional interest rate hike, the U.S. Dollar will appreciate, making it harder for American exporters to compete in the global market. Consequently, the strong dollar will ultimately help widen the trade deficit. As President Trump’s focus remains on closing the trade deficit, he is certainly not a fan of increasing the cost of borrowing in the U.S. and he has already broken the norm of not commenting on monetary policy.
The Federal Reserve might have already considered taking a break from hiking rates as the unemployment rate slipped to 4.0% in June. However, it will be interesting to see if there are any indications about President Trump’s comments in the Federal Open Market Committee (FOMC) statement this week.
To sum up, the Fed is certainly in a dilemma about whether to ignore President Trump’s grievance or try to come up with an elaborate explanation and the volatility this week will largely depend on its remarks.
Check out last week’s Market Glance here in which investors focused on the Atlanta Fed’s forecast that the U.S. GDP grew by over 4.0% in Q2’18.