Fed policymakers have warned the partial trade deal will not eliminate businesses’ concerns.Chris Wattie/Reuters
U.S. central bankers on Wednesday expressed confidence they have borrowing costs at the right level to sustain growth and lift inflation to healthier levels, despite what businesses say is a lingering drag from uncertainty over U.S. trade policy.
But even during the signing ceremony for a trade deal with China that promises to clear up some of that uncertainty, President Donald Trump reprised a long-running gripe against the Federal Reserve, and appeared to identify a possible new Fed chair who may fix the problem.
“I could have used you a little bit here,” Mr. Trump said to former Fed governor Kevin Warsh, who made no secret in Mr. Trump’s first year in office that he wanted the Fed chair job. Mr. Trump picked Jerome Powell instead, a move he has since said he regretted. “Why weren’t you more forceful when you wanted that job? … I would have been very happy with you. But Kevin, thank you for being here. You understand that very well, right?”
From there, Mr. Trump launched for the first time in about a month into what has been a recurrent complaint against the Powell Fed.
“We’re the number one in the world by far, and we have to pay for our money,” Mr. Trump said, contrasting U.S. borrowing costs with Europe’s negative interest rates, a function of that region’s slower growth and dimmer outlook. “Our interest rates are set high by the Fed. Our dollar’s very high.”
That is not the way Fed policy makers see it.
Last year, with Mr. Trump waging a trade war with China and other countries, and Europe slowing, the U.S. central bank cut rates three times to a target range of 1.5 per cent to 1.75 per cent, a level it expects to stick to for the time being.
Rates are currently in a “good place,” unless there is a substantial change in inflation, Philadelphia Fed President Patrick Harker said on Wednesday in New York, adding that low rates can encourage excessive risk-taking.
Dallas Fed President Robert Kaplan, speaking at a separate event in New York, voiced renewed skepticism that negative rates can help economic growth and said he expects the U.S. economy to grow at about 2 per cent this year, slower than last year but still fast enough to push down on unemployment in his view.
“My expectation is inflation will gradually go back up to target and reach a sustainable 2 per cent in 2021,” San Francisco Fed President Mary Daly said at the Bishop Ranch Executive Forum in San Ramon, Calif., about an hour’s drive from her bank’s headquarters.
She too said the economy will grow at about 2 per cent, keeping unemployment at its current 3.5-per-cent level and pushing up wages by between 3 per cent and 3.5 per cent. “If it went up a little bit more, that would only get us to our inflation target a little bit faster,” Ms. Daly said.
The three policy makers spoke on the same day Mr. Trump and Chinese Vice-Premier Liu He signed an initial trade deal at the White House after 18 months of tit-for-tat tariffs between the world’s two largest economies that has uprooted supply chains and slowed global growth.
A survey conducted by the Fed in late 2019 and released on Wednesday showed that uncertainty over U.S. trade policy continued to hurt companies, even as the U.S. economy expanded at a modest pace.
“In many districts, tariffs and trade uncertainty continued to weigh on some businesses,” the Fed said in its report, compiled from questionnaires and interviews with business contacts across the country.
Mr. Powell’s term as Fed chair runs to 2022, a term he expects to complete despite searing criticism from Mr. Trump. Americans choose their next president at elections in November, and if Trump keeps his job as president he has made it clear he would replace Mr. Powell.
Mr. Warsh was a Fed policy maker for five years until 2011, when he resigned in the wake of the Fed’s decision to launch its second round of bond-buying, a move Mr. Warsh worried would exacerbate what he viewed as already overly accommodative monetary policy.