The art of the retreat

Daily update

With investor concerns growing, US President Trump demonstrated the art of the retreat. They stated they had “no intention” of firing Federal Reserve Chair Powell. Trump may not be able to (legally), but markets will still have lingering concerns about Fed independence. Trump also said they would be “very nice” in any trade negotiations with China, raising hopes that the tax burden on US consumer may lessen.
Markets reacted positively to these retreats, which signal that the coming US economic slowdown plus market moves may limit extreme policy positions. Nonetheless, the erratic threaten-retreat-threaten-retreat cycle has economic consequences. The uncertainty this causes may impact consumer and business decision-making.
The Fed’s Beige Book is likely to pick up some of this uncertainty. This is based off anecdotal evidence, which is subject to bias—businesses know their comments are heard by policy-makers, and may exaggerate their reported views to try to sway policy. Nonetheless, the comments will be looked at for signs of the impact of erratic administration policies, and the potential for second-round inflation effects from trade taxes.
No fewer than 14 central bankers are jostling for media attention today—the Bank of England’s Bailey and Pill may get attention as markets speculate on the speed of policy easing.