US President Donald Trump speaks to members of the media before boarding Marine One on the South Lawn of the White House in Washington, DC, the US, May 14 2019. Picture: AL DRAGO/BLOOMBERG
US President Donald Trump speaks to members of the media before boarding Marine One on the South Lawn of the White House in Washington, DC, the US, May 14 2019. Picture: AL DRAGO/BLOOMBERG

Washington  — President Donald Trump called on the Federal Reserve to “match” what he said China would do to offset economic hardship being caused by tariffs as he sought to draft the US central bank into his simmering trade war.

“China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing,” the president said in a tweet on Tuesday. “If the Federal Reserve ever did a ‘match,’ it would be game over, we win! In any event, China wants a deal!”

His suggestion that the Fed could help him counter China in the countries’ trade war builds on Trump’s repeated efforts to pressure the US central bank to stimulate the US economy, even though growth is solid and unemployment is at a 49-year low. The remarks may also help him deflect blame onto the Fed if the escalating trade dispute causes the US economy to stumble as he seeks re-election in 2020.

The president’s comments will probably feed concerns in other countries over Trump’s willingness to break long-standing norms of international economic diplomacy. The US has long complained about other governments applying political pressure on central banks and argued that Fed policy is driven by domestic economic priorities rather than any international competition.

Fed officials raised interest rates four times in 2018  but have since signalled an extended pause as they wait for a tight labour market to lift inflation that has been persistently too low.

While financial markets expect the Fed to cut interest rates in the next year, chair Jerome Powell and his colleagues have indicated they do not  see a strong case for a move either way. They have  also stressed that they will make moves independent of any political considerations.

Uncertainty caused by the escalating trade dispute has been one cloud on the horizon, with US stocks slumping sharply on Monday after China retaliated against import levies that the US imposed last week, even as Trump threatened to do more.  

Trump moved to reassure markets on Tuesday, saying that the US has “a dialogue ongoing” with China. “I think it’s going to turn out extremely well,” Trump told reporters as he was departing the White House for a trip to Louisiana

Still, four-fifths of economists polled by Bloomberg see a further escalation of tariffs increasing the possibility that the US economy could slip into recession by the end of 2020.

The US trade representative’s office on Monday released a list of about $300bn worth of Chinese goods including children’s clothing, toys, cellphones and laptops that Trump has threatened to hit with a 25% tariff.

New York Fed president John Williams told Bloomberg Television earlier on Tuesday that the levies were already starting to push up US inflation and will have a greater impact as they rise, though the US economy is in a “good place” right now.

Trump has repeatedly criticised the central bank, urging it to deliver a drastic rate cut and resume bond purchases in an April 30 tweet. That was a reference to the Fed’s quantitative easing campaign in the aftermath of the financial crisis which was deeply unpopular at the time with many of Trump’s fellow Republicans.

With assistance from Justin Sink

Bloomberg