• Bloomberg


President Donald Trump wrapped up the weekend as he started it, jawboning the Federal Reserve to lower interest rates at a time when he may be sizing up his two latest picks for Fed governor as successors to Chairman Jerome Powell.

If the Fed “knew what it was doing” it would cut rates, Trump told reporters before he boarded Air Force One in Morristown, New Jersey, to return to Washington after a weekend at his nearby golf club. Fed policy is putting the U.S. at a disadvantage versus Europe and suppressing gains in the stock market, Trump said.

Sunday’s comments came after Trump said on Friday that the central bank “doesn’t have a clue” and was “our most difficult problem.”

The fresh criticism is consistent with ideas that the president is laying the groundwork to replace Powell when the chairman’s term is up in 2022, assuming Trump is re-elected, or will attempt to do so earlier if the Fed doesn’t bend quickly enough to his will.

“Our most difficult problem is not our competitors, it is the Federal Reserve,” Trump said in a Twitter post late Friday. The Fed had “raised rates too soon, too often” and “doesn’t have a clue,” he said. Trump has repeatedly accused Powell of not doing enough to bolster the economy.

Trump this week nominated economists Judy Shelton and Christopher Waller to seats on the Fed’s board of governors. While their backgrounds are divergent, both are thought likely to enthusiastically support the president’s call for lower interest rates.

Either may be in line for the Fed’s top job once Powell’s term as chairman expires or even before, according to a person familiar with the matter.

Trump discussed firing Powell in late 2018 and asked White House lawyers earlier this year to explore options for removing him as Fed chairman, according to sources. Last month Trump denied in an interview that he’d threatened to demote Powell back to a board governor — Powell’s term on the board runs until 2028 — but said he’d “be able to do that if I wanted.”

Powell has said that he intends to serve his full four-year term at the helm of the Fed and that “the law is clear” on that issue.

The Federal Reserve Act says governors may be “removed for cause” by the president, which generally has been taken to mean inefficiency, neglect of duty or malfeasance — not merely setting policy that displeases the commander-in-chief. Trump’s regular assertions of policy missteps may be a way to build a case for neglect of duty.

The latest comments by Trump — Sunday’s, and two rounds on Friday — came after the government said June growth in payrolls smashed expectations and overturned ideas that the central bank was almost certain to cut rates at its July 30-31 meeting, as the president has urged.

Growth “would be like a rocket ship” if the Fed eased, Trump told reporters at the White House on Friday.

Trump has spent almost a year criticizing Powell and the Fed for raising rates in 2018 and failing to reverse course since then. He first said in July 2018 that he was “not thrilled” with the Fed’s actions, and the criticisms have only ratcheted up since then.

Friday’s payrolls report for June shifted the debate from how much to cut interest rates this month to whether to move at all.

Yields on two-year U.S. Treasuries previously jumped to 1.87 percent from 1.76 percent, reflecting reduced odds of the Fed aggressively reducing borrowing costs in the near term. Fed funds futures, which had been indicating some possibility of a half-point rate cut in July before the Labor Department’s data, are now pricing a quarter-point reduction this month, and at one point on Friday even showed that outcome was less than 100 percent certain.

Powell, who has said uncertainties in the U.S. outlook could call for lower rates, will give his read on the economy in two days of semiannual testimony before Congress starting Wednesday. He’ll almost certainly be asked about Trump’s regular criticism.

Beyond that, policymakers at the Federal Open Market Committee meeting this month will discuss whether the U.S. needs an “insurance cut” amid a slowing global economy, trade frictions and low inflation.

Powell, whom Trump nominated to replace Janet Yellen and who took up the position in February 2018 — isn’t the only central banker facing political pressure.

Turkish President Recep Tayyip Erdogan removed that country’s central bank governor, who kept interest rates on hold in June, according to a presidential decree published Saturday. The official, Murat Cetinkaya, was said to have refused an informal request to resign.

While the Fed dropped “patient” from its policy guidance at its June meeting, the strength in the pace of hiring will enable the FOMC to delay the onset of a mini-easing cycle until September; but the central bank will still need to cut in order to steepen the yield curve.

Payrolls climbed 224,000, compared with the median economist estimate for 160,000, after a relatively weak 72,000 advance the prior month, according to the Labor Department figures. The jobless rate ticked up to 3.7 percent from a half-century low of 3.6 percent while average hourly earnings increased 3.1 percent from a year earlier, slightly less than projected.

In a report after the employment release, Goldman Sachs Group Inc. economists led by Jan Hatzius said recent Fed speeches and interviews suggest the central bank will go ahead with a cut in July.

“We continue to see rate cuts as the most likely outcome,” with 60 percent odds of a July quarter-point cut, 15 percent odds of a half-point reduction, and 25 percent odds of no policy change.

“The July meeting is probably a closer call than what the markets are implying,” said Neil Dutta, head of economics at Renaissance Macro Research. “If you were thinking they would cut rates three times this year, the momentum is so strong in July that that is not going to happen.”

In a separate tweet Saturday, Trump said the U.S. is the “envy of the World” after all three U.S. stock indexes closed at record highs before the July 4 holiday. On the eve of his formal re-election announcement, Trump warned of an epic stock market crash if he was not returned to office in 2020.

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