Donald Trump Gets His Way on the Dollar
Author: Greg Valliere
March 21, 2019
PRESIDENT TRUMP has received little publicity for one of his major themes — he hates a strong dollar, which he believes has contributed to the U.S. trade deficit. So he got his way yesterday, thanks to the Federal Reserve’s extraordinarily dovish policy changes. A flat-to-weaker dollar should persist, a major plus for U.S. multinational firms.
AND, OF COURSE, TRUMP WON ON INTEREST RATES: Never mind that the Fed moved because the central bankers anticipate a much weaker economy than White House economists; yesterday’s Fed decisions give Trump exactly what he wanted: no further rate hikes for the foreseeable future, which Trump said last fall were “the greatest threat to my re-election.”
WE CERTAINLY DON’T THINK THE FED WAS INTIMIDATED BY TRUMP: If anything, Chairman Jerome Powell was intimidated by the ferocious sell-off in the stock market late last year, which sent him a message: abandon the hawkishness. Now the Fed worries about headwinds, largely from abroad, but there’s a Trump connection there as well. The president’s harsh rhetoric (“I’m a tariff guy,” he famously proclaimed) has contributed to the slower global growth that has helped to produce a dovish Fed and a weaker dollar.
TRUMP’S DESIRE TO WIN RE-ELECTION will have no boundaries, so what’s next? When a miserable first quarter GDP report is released in late April, he will demand a rate cut from the Fed. And why not — he’s not shy about eviscerating Powell. Will Trump seek fiscal stimulus as well? Of course he will — deficits are irrelevant in Washington, so we anticipate a cynical push to plow billions into infrastructure. A huge Pentagon spending increase is a given.
TRUMP WILL MOST NEED A VICTORY in the wake of the Mueller report, so he will push hard for a final China trade deal in the next few weeks. Regular readers know that we think expectations are too high for anything soon, but a late spring pact would provide relief for farmers, businesses and investors who will breathe easier once a trade war is avoided. That relief, combined with a soft dollar, should be a major plus for U.S. multinationals.
MANY CLIENTS ask how Trump’s job approval ratings could possibly have risen into the high-40s. Our response is that he gets extremely high grades — 70% favorable — for his handling of the economy. And now consumers can count on continued low interest rates, moderate economic growth and a solid labor market — quite a remarkable combination.
WHETHER A WEAK DOLLAR eventually produces some inflation is intriguing (look at the commodity price rise in recent weeks). But that’s a risk that Trump — and the Fed — are willing to take. So the president can campaign on the economy and might even luck out with a Mueller report that simply produces a road map for more and more investigations. The public is getting bored.
BUT TRUMP HAS TO WORRY about a looming storm — the antipathy (even hatred) toward him among Congressional Republicans who are disgusted by his defamation of John McCain. Trump’s recent poll surge could hit a wall in the coming week; even his hard-core supporters are dismayed to see such appalling assaults on an iconic war hero. At the very least, Trump is stepping on his message on the economy, which — thanks to the Fed — may continue to break his way.
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