Yahoo Finance Trump’s trade war puts the Fed in a 'very tough position': Economist
President Trump is railing again at the Federal Reserve today, writing in a series of tweets that the central bank has “called it wrong at every step of the way” and interest rates are “making it more difficult” for U.S. companies to compete.
But Mellon Chief Economist and Macro Strategist Vincent Reinhart, a former top economist at the Fed, says it’s the president’s own trade war that’s casting uncertainty over the economy.
President Trump “knows the result he wants, which is lower interest rates,” Reinhart told Yahoo Finance’s “The First Trade.” “To an important extent what’s happening is the president is creating the uncertainty about trade that’s weighing on demand. That puts the Federal Reserve in the game to have to ease monetary policy.”
But Reinhart says it’s increasingly difficult to forecast the pace of rate moves, given the uncertainty around what could come next on trade.
“I think they’re in a very tough position to figure how how to estimate” the impact of the trade war,” he said. “The narrow path that you calculate the effect of tariffs on activity really is pretty limited.”
“The effects of tariffs and the trade war generally are much broader,” Reinhart says. “It’s about sentiment, it’s about what happens to financial conditions. The increase in uncertainty affects business investment.”
And for all of Federal Reserve Chairman Jerome Powell’s insistence on being independent, to Reinhart’s mind there’s little doubt that he’s being influenced by the president’s actions.
“If the Fed follows markets, and markets follow tweets, then the president has influence on the Fed,” Reinhart says.
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