As a consequence, when the Fed pivoted, all other major central banks followed. Draghi pushed the ECB in that direction in Sintra and followed through with further easing on September 12. This similarly drew Trump’s ire, as he viewed the move as directed toward the exchange rate. He is right, indirectly. A weaker euro is the intermediate result Draghi seeks in order to support a flagging economy and move inflation up to the ECB’s target of near, but below, 2%.
The ECB’s response, of course, means less dollar depreciation, weakening the stimulus effect of the Fed’s move. And the consolation that by easing policy, the Fed single-handedly induced worldwide monetary accommodation does not get much credit from the White House. Trump would prefer that Powell were faster than his counterparts in the race to the interest-rate bottom. Powell’s problem is that the US economy apparently does not require such stimulus. Job gains remain robust, and wages are ticking up. Global trade may be in recession, but the US economy is not as dependent as its trading partners on global trade.
Probably to Powell’s deep and never-to-be-expressed frustration, the Fed is setting monetary policy in a way that increases the likelihood that Trump will be reelected next year. That instruction is not contained in the Federal Reserve Act, of course, but the Fed is supposed to deliver maximum employment and stable prices. Its mandate of sustainable economic growth thus requires Powell to attempt to offset the effects of policy uncertainty under Trump.
Fed officials are not thinking of intentionally letting the economy stumble between now and the 2020 election. Thus, if Powell succeeds, Trump will not bear the cost of his words and actions. This will invite more of the same.
There is a reason that Powell often has a haunted look, and not just at Jackson Hole.
Carmen M. Reinhart is professor of the international financial system at Harvard University's Kennedy School of Government.
Vincent Reinhart is chief economist and Macro Strategist at BNY Mellon.