Donald Trump has recently stated his harsh criticism towards the Federal Reserve, therefore breaking an over 25-year tradition of respect towards the system. He accompanied his criticism with comments about China and the EU manipulating their currencies for economic benefits, adding to his previous criticism of the countries involved. His tweet stated that the Fed is constantly raising its interest rates, and by doing so it’s advantage in the global market.
Trump’s tweet stated:
China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day – taking away our big competitive edge. As usual, not a level playing field. The United States should not be penalized because we are doing so well. Tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates – Really?
The controversy around his tweet comes from the fact that U.S. presidents are usually very cautious and strategic when addressing the dollar. Not only did Trump openly discuss the dollar’s condition in a tweet and an interview with CNBC, but he also disrespected the presidential protocol surrounding the Feds independence from government agencies.
His statements are in line with an ongoing narrative that he and the GOP, in general, are trying to portray in face of the upcoming midterm elections. They are attempting to create the image of a soling and growing economy. As the U.S. economy has faced a large set of stimuli throughout the last year, the Fed has attempted to slowly rise up its interest rates, which were previously quite low. The rising of rates is being done in parallel with the economy’s constant increase in strength, and the system is currently attempting to raise them four times this year, already having done it twice.
The president’s tweets seemed to indicate towards the proposition of pushing the dollar lower, which gained the attention of financial experts and raised concerns immediately. After his comments, the dollar fell a 0.6% from its previous value, and United States Treasury bonds fell as well, rising yields. A Cornell University professor was quick to comment on his reaction, questioning
The dollar is strengthening against other currencies because the U.S. economy is doing well and is implementing a fiscal expansion through a massive tax cut, both of which Mr. Trump has claimed credit for. [Condemning the rising rates as] implicitly aiding the enemy in U.S. trade wars is a dangerous and destructive strike against the Fed’s independence.”
Trump’s aides have also attempted to clarify the situation, stating that the president was not trying to directly influence the Fed, but just advising them to slow down the increases in order to avoid a block in economic growth.
The administration has already applied tariffs to 4% of American goods, which include aluminum, steel and several Chinese products. While China’s currency has been weakening in recent months, it is unclear if the changes were caused by more cautious markets or a push of national exports from their government.