Federal Reserve Chair Jerome Powell said the central bank would “act as appropriate” to keep the U.S. economy healthy, but stopped short of cutting the interest rate, prompting a response from President Donald Trump.
Trump charged at both Powell and with China, which earlier on Friday had retaliated to U.S. tariffs with its own import taxes on American crude oil, agricultural products and small aircraft.
As usual, the Fed did NOTHING! It is incredible that they can “speak” without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work “brilliantly” with both, and the U.S. will do great…
— Donald J. Trump (@realDonaldTrump) August 23, 2019
The rapid escalation, which tanked stock markets and drove bond yields lower even before Trump raised the ante with additional tariffs on China, could force the Fed to cut rates to keep the 10-year expansion under way.
Powell shared data on Friday showing further deterioration in the U.S. housing market, on the heels of figures earlier in the the week showing weakness in the manufacturing sector.
But the message from both Powell and his second in command, vice chair Richard Clarida, was that while the Fed may be willing to cut to protect the recovery, it made no promises.
“We take our policy decisions one meeting at a time,” Clarida said late Friday afternoon, after Wall Street trading had closed with key indexes down from 2% to 3%.
The Fed cut rates for the first time in more than a decade last month, backing Powell’s verbal commitment to sustain the expansion with action. Powell on Friday made clear that commitment is still in place in a speech he gave at an annual Fed retreat at a Jackson Hole valley resort set against the Grand Teton mountains.
He said there are “significant” risks to the economy, including the trade dispute, the British exit from the European Union, tension in Hong Kong, and signs of a global economic slowdown.
But he also said the domestic U.S. economy is in a “favorable place” now and he stressed limits to the Fed’s ability to respond to the trade issues. He also said officials need to “look through” short-term turbulence, and stopped short of endorsing or signaling the pace and depth of rate cuts markets widely expect and that Trump has demanded.
There are “no recent precedents to guide any policy response to the current situation,” Powell said, adding that monetary policy “cannot provide a settled rulebook for international trade.”
The U.S. president wrote on Twitter that the Fed did “NOTHING” in a series of tweets and asked who is “our bigger enemy” between Powell and China’s President Xi Jinping. Markets swung when he added that “our great American companies are hereby ordered to immediately start looking for an alternative to China.”
Global stock markets fell, with the U.S. S&P 500 index closing down more than 2%. U.S. benchmark Treasury yields fell to their lowest level in a week and the dollar declined broadly.
Later on Friday Trump announced he was raising tariff rates on a range of Chinese goods by an additional five percentage points.
Fed officials say tariffs and trade tension are causing businesses to put off spending.
Reuters contributed to this article.
