Glimmer of Hope on Trade; Fed Weighs Inflation Goals; Trump Just Won the GOP Nomination
Author: Greg Valliere
June 3, 2019
AFTER THE DISASTROUS REACTION to still more punitive tariffs from the U.S., could cooler heads prevail this week? There are glimmers of hope this morning as China urges a resumption of talks and a high-level Mexican delegation prepares to visit Washington this week to meet with Secretary of State Mike Pompeo.
DONALD TRUMP WILL SPEND MUCH OF THE WEEK injecting himself into the Brexit dispute and British politics, so it’s unlikely he would sign off on any new approach to China until later this month — ahead of the G-20 summit — or agree to any breakthrough with Mexico; if there’s a deal, he would insist on hosting a splashy event on the White House lawn with the chastened Mexicans. So the most to hope for this week may be a cooling of temperatures.
THE MOOD IN WASHINGTON this past weekend was one of disbelief over the Mexican tariffs, as key advisers Stephen Mnuchin and Robert Lighthizer leaked to the press that they oppose this latest move (Larry Kudlow, laid up with hip replacement surgery, is another likely dissenter). Republicans and business leaders strongly oppose the Mexican move; they’re worried about the impact on the pending USMCA treaty, which now appears to be in limbo.
A CYNICAL VIEW OF THE MARKET REACTION: Trump may realize that this isn’t a bad time to take a market sell-off or an economic speed bump — he’s still got a year-and-a half until the next election. And if the recent turbulence prompts to Fed to cut interest rates, all the better!! A Treasury 10-year bond yield below 2-1/4% is just what Trump wants, and his controversial trade policies may keep rates astonishingly low. Is this a clever plan?
SO HERE COMES THE FED, seemingly always fighting the last battle, convening a high-publicity conference in Chicago on Tuesday and Wednesday, focusing on options for getting maximum employment and a higher inflation rate. Hello — we have maximum employment, and we would argue that much higher tariffs will achieve the inflation goal by later this year, which Trump also may welcome. Trump wants more inflation and rock-bottom interest rates; he believes that’s the magic formula to deal with debt issues.
ONE THING TRUMP WON’T HAVE TO WORRY ABOUT: He essentially won the Republican 2020 nomination this weekend (not that it was in much doubt), when Maryland’s popular GOP Gov. Larry Hogan announced he will not run. We thought Hogan might win a third of the vote in a few states like New Hampshire, but he realized that challenging Trump would be a waste of time and money. Only William Weld, the gadfly former Massachusetts governor, is challenging Trump.
SO AS 23 DEMOCRATS form a circular firing squad — sniping at each other in California this past weekend, arguing over impeachment — Trump will have an uncontested path to the Republican nomination. A contested path often means trouble for an incumbent president, but Trump has an iron grip on his party; most of the 23 Democrats, meanwhile, are eager to please the far left and bash Joe Biden.
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