President Donald Trump’s advisors reportedly are pushing him to focus on keeping the economy strong even if it means easing up on the trade dispute with China and his intense criticism of Federal Reserve Chairman Jerome Powell.
With the 2020 election looming, “plenty of people” inside the White House are telling Trump that trade wars are not “good and helpful,” according to a Politico report behind the site’s paywall.
Along with the advice on China, the president is hearing from advisers telling him to lay off Powell, who is likely to lead a move next week to cut interest rates by a quarter percentage point, or 25 basis points.
On the overall, the effort is to get Trump to avoid moves that will thwart economic growth, which appears to be slowing after a 2018 that saw GDP rise 2.9%. While the first quarter this year came in at 3.1% growth, Q2 is expected to show an increase only around 2% and perhaps even less.
For a president continuously under fire for controversial tweets and continuing impeachment threats from some progressive Democrats following the Robert Mueller Russia collusion investigation, maintaining solid economic growth will serve as a pillar the re-election campaign.
The focus is to avoid “prosperity killers,” Larry Kudlow, director of the National Economic Council and a key Trump adviser, said in brief remarks to CNBC. “But that doesn’t apply to easing up on China.”
‘The greatest economy’
Administration officials including Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer are heading to Shanghai next week for a two-day summit with China leaders. Mnuchin told CNBC in an interview Wednesday that he has hopes the talks will go well though he said there are still “a lot of issues” that need to be addressed despite months of talks.
“The real challenge for Trump, maybe even greater than Mueller, is the economy,” said Greg Valliere, chief global strategist at AGF. “We get a GDP report tomorrow. If we’ve got a 1-handle on that, it really does greatly diminish his claim that this is the greatest economy of all time and all that hyperbole that he uses about the the U.S. economy. If we’re under 2, that is a real problem for him.”
While Trump has been pushing China to open its markets to U.S. good and stop pilfering technology, he also has been pressuring Powell to get the Fed’s benchmark interest rate in line with other central banks around the world.
The Fed, at its two-day meeting starting Tuesday, is expected to approve a cut but avoid the more aggressive 50 basis point reduction that White House has been seeking. The Politico report indicates that Trump’s confidantes want him to “lay off” Powell, who is generally regarded as popular on Capitol Hill.
Valliere said he’s been told by Fed insiders that there’s “suspicion” within the central bank “that Trump will try to demote Powell form chairman to being a mere governor. Trump has indicated that he feels he has the legal authority to do that. The risk obviously is that the markets would react very poorly to that.”
The Politico piece notes that Trump’s avoidance of “prosperity killers” would pass quickly, depending on what happens with the China negotiations and how aggressively the Fed eases.