Date: July 10, 2019
Trump’s Concern About Strengthening Dollar Shows Up in Fed Interviews
“President Donald Trump has grown concerned that the strengthening U.S. dollar is a threat to his economic agenda and has asked aides to cast about for ways to weaken the greenback, according to people familiar with the matter. Trump asked about the dollar in job interviews with both Judy Shelton and Christopher Waller last week, whom he’s selected for seats on the Federal Reserve’s board, the people said. He lamented that the currency’s strength could blunt an economic boom that he expects to carry him to a second term. The president’s top economic adviser, Larry Kudlow, and Treasury Secretary Steven Mnuchin both oppose any U.S. intervention to weaken the dollar, the people said. The president’s questioning of Waller and Shelton follows months of Trump hectoring the Fed to cut interest rates, a move that would have the effect of weakening the dollar. But beyond regular scolding of the central bank and its chairman, Jerome Powell, Trump hasn’t taken steps to reduce the greenback’s buying power. Mnuchin hasn’t been directed to publicly talk down the dollar’s value, for example. And the Fed is now seen as less likely to cut interest rates after a surprisingly strong jobs report last week although markets still anticipate a reduction. Powell is set to give an update on his outlook for the economy and monetary policy before Congress on Wednesday and again on Thursday. Lawmakers will likely ask him about the criticism from Trump. Waller, the executive vice president at the St. Louis Federal Reserve bank, told Trump that central bankers don’t consider the value of the dollar when setting rates, the people said. Kudlow, who participated in the Oval Office meeting, reminded the president that the Treasury Department is responsible for monitoring the strength of the dollar.”
EU Cuts Growth and Inflation Forecasts for Next Year
“The European Commission cut its euro-area growth and inflation forecast for next year as trade tensions and policy uncertainty weigh on the region, strengthening Mario Draghi’s case for further stimulus measures. The latest warning comes just two weeks before the European Central Bank’s next policy meeting, where it may lower interest rates or signal that action is imminent. The fallout from slower global demand was already laid bare this week when German chemicals giant BASF SE shocked investors with a huge downgrade to its profit outlook. In its quarterly forecasts, the EU’s executive arm trimmed its 2020 euro-area GDP projection to 1.4% from 1.5% amid what it said were increased downside risks. On inflation, both this year and next were lowered modestly to 1.3%. The ECB aims for inflation of just below 2% over the medium term. The report reflects more pronounced weakness in the region, which has stumbled along with the global economy as trade disputes hit manufacturers and dent broader confidence. As hopes for a stronger second-half performance fade, the commission said an extended economic confrontation between the U.S. and China and Brexit are threatening the fragile economy. “The resilience of our economies is being tested,” said European Commission Vice President Valdis Dombrovskis. The EU’s forecasts come in the wake of economic numbers — particularly in Germany — that have added to pessimism about the euro area. All of that is giving ECB President Draghi reasons to follow through his pledge to loosen monetary policy again if the situation doesn’t improve. A survey of investors this week suggested a German recession is likely, and confidence among French manufacturing executives is at its weakest in six years. Concern about the economy, along with an expectation of ECB stimulus, is pushing bond yields lower across the region. Germany’s 10-year yield is stuck below zero, while even borrowing costs in Italy have fallen despite concerns about the nation’s fiscal situation.”
U.S., China’s Top Trade Officials Make First Contact Since Truce
“The U.S. stance on Hong Kong’s protests, arms sales to Taiwan, and Huawei Technologies Co.’s fate are among issues in play alongside trade as the U.S. and China resume talks. The U.S. agreed to tone down criticism of Chinese rule in Hong Kong recently in order to restart trade talks, according to a Financial Times report on Wednesday. That concession to President Xi Jinping contrasts with the continued restrictions on Huawei, which Commerce Secretary Wilbur Ross said on Tuesday is still on the ‘entity list’ limiting its access to U.S. goods and services. The phone call between the two sides Tuesday was the first confirmed contact since Xi and President Donald Trump met last month and agreed to resume talks. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke on the phone with their Chinese counterparts Chinese Vice Premier Liu He and Commerce Minister Zhong Shan, according to an emailed statement from a U.S. government official who declined to be named in line with policy. Both sides will continue these talks as appropriate, the official said, without offering more details on the next steps. China’s Ministry of Commerce confirmed the conversation in a brief statement Wednesday morning, saying the two sides “exchanged opinions on implementing the consensus reached in Osaka” by Presidents Xi and Trump. The announcement of the talks came after China criticized the U.S. and its officials this week for agreeing to sell arms to Taiwan, which China regards as part of its territory, and for meeting with a Hong Kong newspaper publisher who’s an outspoken critic of Chinese rule. White House economic adviser Larry Kudlow characterized the phone discussion as “constructive,” and said officials are planning more meetings but that no details have been confirmed. “Hopefully we can pick up where we left off but I don’t know that,” he told reporters Tuesday. The U.S. officials will continue to speak with their Chinese counterparts on trade issues and perhaps make a trip there “shortly,” Kellyanne Conway, counselor to President Trump, told reporters in Washington. Trump and Xi agreed to a tentative pause in their trade war after meeting at the Group-of-20 leaders’ summit in Japan on June 29, and they directed their negotiators to find a path forward on a deal. The leaders didn’t outline a time-frame for negotiations or a deadline to finalize a trade deal.”
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