Time for Powell to grow a spine

Editorial | Mary Ma 30 Oct 2019

The US Federal Reserve is poised to cut interest rates for the third time in a row since July. But will it be the final reduction for Fed chief Jerome Powell in this year that has been an annus horribilis for him, beginning as it did with scornful attacks by US President Donald Trump that were designed to get him to reverse the rate cycle?

Look for some clues to come from Trump.

Contrary to his usual explosive temperament, Trump has been incredibly silent of late on his "disobedient" central banker, whom he had denounced as having "no guts, sense and vision" prior to the Fed's meeting in September.

Back then, the Fed responded to that with a second rate cut.

In the wee hours of Thursday our time, the Fed will most likely further lower interest rates by 25 basis points.

The circumstances this time are somehow different.

For, in the runup to the meeting, Trump has yet to whip up a Twitterstorm against the man he has so furiously and shamelessly denounced before.

Perhaps Trump is preoccupied with the first-stage trade agreement that is said to be in the process of being crafted with President Xi Jinping.

Although the partial deal is not expected to answer long-standing demands for China to stop subsidizing state-owned enterprises and pushing for tech transfers, it will commit China to buy more agriculture products from American farmers, whose votes planted the seeds for Trump's presidential victory in 2016.

Or maybe Trump had some kind of an assurance from the central banker.

Far from his usual angry volatile self, Trump has been positively exultant this week - probably because of progress in trade talks with Xi, who's conducting a communist party plenum in Beijing to discuss the deal, and the US military success in killing ISIS leader Abu Bakr al-Baghdadi in Syria.

Either that or Trump knows that the United States no longer holds all the aces in the global trade deck to maintain a dovish path and keep lowering interest rates after successive cuts.

No matter what the considerations are that preoccupy Trump, his silence on Powell is extraordinary.

For it shows he's no longer as keen - at least for the time being - to demand the central banker act aggressively to lower interest rates.

Following the widely anticipated rate cut tomorrow, Powell may well drop a hint in an attempt to prepare the market for a pause in rate cuts that, after three successive reductions, amount to a de facto monetary easing policy.

While a hawkish post-meeting statement ruling out another reduction in December will shake up the stock market in the near term, one that's neither dovish nor hawkish would be better received by investors.

Besides the Trump factor, other factors influencing Fed deliberations are economic in nature, including the impact of the trade war on the US economy, the prospect of a hard Brexit, recession concerns prompted by inverted yield curves and the results emerging from Wall Street.

Those indicators, emerging from fluid situations, have been mostly changing for the better. For example, the trade war is dying down; the inversion of yield curves is being corrected; Wall Street indices are at historical highs; and Brexit has been postponed again. These are legitimate factors to consider.

Arguably, the only factor Powell should stop taking into account is Trump's angry tweets. Grow a spine, Powell.

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