Analysis | The Finance 202: Powell is propping up Trump’s economy – The Washington Post

THE TICKER

Federal Reserve Chair Jerome Powell isn’t heeding President Trump’s demands to slash interest rates. 

But the central bank chief still delivered unequivocal good news for Trump’s reelection hopes: He doesn’t see the Fed raising interest rates anytime soon, leaving in place the cushion it put under the economy earlier this year.

Powell, addressing reporters after the Fed’s final meeting of a turbulent decade, predicted smoother sailing next year as Trump gears up to face voters. He said monetary policymakers “expect moderate growth to continue,” at a slowed but still healthy 2 percent pace.

And he took some credit for helping navigate head winds from Trump’s trade war and choppiness abroad, saying the Fed’s three interest rate cuts over the summer and into the fall, for which he forged consensus among Fed officials, “kept the economy on track.”

Indeed, the Fed’s official statement — accompanying the announcement it is holding the benchmark interest rate steady between 1.5 and 1.75 percent — dropped its mention of “uncertainties” facing the economic outlook.

Per my colleague Heather Long: “Powell left the door open to changing interest rates in 2020, but he stressed there is a high bar for moving rates up or down. ‘We’re going to do what we think is the right thing for the economy,’ Powell said. If there is a ‘material reassessment of our outlook, we would respond accordingly.’ ”

Powell’s presentation marked a heel turn from earlier this year. Stocks tanked in July after Powell described the Fed’s first interest rate cut in a decade as a “mid-cycle adjustment,” because investors interpreted the remark as a signal the relief monetary policymakers were providing was only temporary. Now, however, “the cuts look much more permanent,” Grant Thornton chief economist Diane Swonk writes in a note. “The vote to hold rates unchanged was unanimous, the first time that all agreed on what the Fed should be doing since May 2019.”

And 13 of the 17 members of the Fed officials setting policy indicated they expect the borrowing rate to remain untouched next year, while four projected one hike. As recently as September, nine of the policymakers projected at least one rate hike next year.

Investors had largely priced in the Fed’s decision to hold rates steady, but stocks rallied modestly on Powell’s post-meeting comments. Major indexes snapped a two-day losing streak, with the S&P 500 closing up 0.29 percent and the Dow Jones industrial average climbing 0.11 percent on the day.

“Markets liked Mr. Powell’s assertion that he would want to see a ‘significant’ and ‘persistent’ increase in inflation before he would want to raise rates, and he again drew attention to the undershoot to the target in recent years,” Pantheon Macroeconomics chief economist Ian Sheperdson wrote in a note. “Mr. Powell’s view is not shared by all his colleagues, given that most of them expect rates to rise slightly over the next three years while core inflation is expected to be little changed. But markets put much more weight on the views of the Chair; that’s probably the right approach.”

But if Powell is landing on a position that benefits Trump, it’s no indication the president and his handpicked Fed chair are simpatico. Trump has treated Powell like a punching bag, attacking him relentlessly for leading the Fed to raise rates last year and not cutting them as far or as fast as the president would have liked in 2019. Now, as Heather writes, “the pressure is largely off. The stock market is back at record highs. Unemployment is at a 50-year low, inflation remains tame, and the economy continues to grow at a healthy pace around 2 percent with little chance of a recession. While [Trump’s] trade war continues to inflict harm, the Fed’s actions are widely credited with offsetting most of it, at least for the United States.”

Trump hasn’t extended an olive branch. But his top economic adviser, Larry Kudlow, said at a recent conferencethe Fed’s role in the economy has been overstated. “His comments suggest that, for all the bashing and political drama, Powell may be less of a central figure in the political battles of 2020, having delivered rate cuts the economy needed without seeming to bend to the will of a volatile president, something that could have undermined investor confidence in an independent central bank,” Politico’s Ben White and Victoria Guida write.

And Powell has garnered improved marks from Fed watchers, including former central bank officials, who criticized his communications strategy and execution as uneven. At his most recent news conference, Powell “projected more confidence than at any presser before,” former Dallas Fed President Richard Fisher told the Wall Street Journal’s Nick Timiraos. “He is visibly in command of the ship.”

MARKET MOVERS

— Inflation stays muted. WSJ’s Sarah Chaney: “Inflation isn’t likely to take off anytime soon, recent readings on prices and labor costs show. Consumer prices rose at a 2.1% annual pace in November, from 1.8% in October, mainly due to higher energy and shelter costs, the Labor Department said Wednesday.

“The readings suggest that companies have less pricing power because of factors including globalization and consumers’ growing tendency toward comparison shopping, say economists, who expect these trends to continue even though U.S. unemployment is at historic lows and companies face higher prices for some products tied to tariffs.”

— U.S. budget deficit widened in November: “The U.S. budget deficit expanded in November, reflecting an increase in spending tied to the timing of some federal payments,” Bloomberg News’s Katia Dmitrieva reports.

“The monthly gap increased to $208.8 billion in the month, 1.9 percent above the prior year’s level, the Treasury Department reported on Wednesday. Spending increased 5.6 percent, with outlays rising for agriculture, defense, Social Security, and Medicaid. Receipts jumped 9.3 percent on increases in payroll taxes and individual income payments.”

— Brexit on the ballot. The Post’s William Booth and Karla Adam: “The United Kingdom goes to the polls Thursday to decide the fate of vexatious, divisive, gridlocked Brexit. The vote — between the two major parties offering the starkest of choices — is set to shape Britain’s sense of itself, its union, economy and relations not only with Europe but also the United States, for years to come.

“There’s no escaping it. This snap election was called because Britain is broken over Brexit. If Prime Minister Boris Johnson and the Conservatives achieve a solid majority in Parliament, they will assuredly plow forward with Brexit. Dreams of a second referendum — of remaining in the E.U. — will be dashed. And by January, one of the dominant partners in the long, lucrative, peaceful, postwar order, manifested by Europe’s political and trade bloc, will go off on its own.”

TRUMP TRACKER

TRADE FLY-AROUND:

— Trump to huddle top advisors as tariff hike looms. Reuters: “Trump is expected to meet with top trade advisors on Thursday to discuss planned Dec. 15 tariffs on some $160 billion in Chinese goods, three sources familiar with the plans said, as markets braced for potential negative impacts.

“Officials circulated talking points downplaying the repercussions such a tariff hike would have on the U.S. economy ahead of Trump’s meeting with Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, and White House advisers Larry Kudlow and Peter Navarro. The senior trade advisors are expected to present divergent views during the high-stakes meeting, but the final decision will be up to Trump, the sources said.”

Ron Vara is back: “A critical decision about China tariffs is looming, and Ron Vara, Peter Navarro’s hawkish alter ego, has re-emerged to share some thoughts on the matter,” the New York Times’s Alan Rappeport reports.

“[Navarro], a senior trade adviser to Mr. Trump and a China skeptic, has cast doubt on the willingness of Beijing to meaningfully overhaul its trade practices and has advocated the tariffs as a tool to force China to change its behavior. He’s not the only one making that point. To illustrate those concerns, [Navarro] harnessed his literary muse, Ron Vara, in a memo that is circulating in Washington. Sent from an email address purportedly belonging to Ron Vara, the memo highlights public commentary in favor of keeping the pressure on China with more tariffs.”

• The email: “The memo does not show [Navarro] formally endorsing any views, but it lives up to his reputation for seeking to force deep structural changes to China’s economy through tariffs. It outlines the ‘keep tariffs argument,’ which accuses China of stepping up American farm purchases of pork and soybeans only because of its domestic swine fever outbreak. And he claims that recent changes to Chinese law run counter to promises by the country’s officials to protect American intellectual property.”
• There’s also a line about the markets: “And, in a twist on market certainty, it suggests that [Trump] could calm jittery investors by publicly backing away from a deal: ‘Get uncertainty out of the market by announcing NO deal until after the election and ride the tariffs to victory.’”

Dimon expects U.S.-China deal: “JPMorgan Chase & Co.’s Jamie Dimon said he expects to see a phase-one trade deal between the world’s two largest economies, but warned that an additional wave of tariffs from the Trump administration would hit markets and U.S. growth,” Bloomberg News’s Katia Dmitrieva and Shawn Donnan report.

“The White House is expected to increase levies on $160 billion of imported Chinese consumer items including toys and smartphones on Sunday, which the JPMorgan CEO said would further weigh on gross domestic product. He spoke at an event in Washington for the Business Roundtable, a Washington trade group that represents the CEOs of the largest U.S. companies.”

— Mexican businesses focus on USMCA’s labor provisions: “Mexican business leaders “began poring over texts of a new stricter trade deal with the United States and Canada, looking for details of how more intrusive enforcement of labor rules in Mexico would affect their operations,” Reuters’s Anthony Esposito and David Lawder report.

“Moises Kalach, a leader of the CCE business lobby, which represented Mexico’s private sector in the negotiation of the U.S.-Mexico-Canada Agreement (USMCA) that will replace the 1994 North American Free Trade Agreement (NAFTA), said that businesses felt sidelined.”

TRUMP WATCH:

— Treasury staffer caught up in college admissions scandal: “James Littlefair, an advance staffer who worked for Treasury Secretary Steven Mnuchin, has resigned from the department after his mother pleaded guilty to illegally helping him graduate from Georgetown University as part of the nationwide ‘Varsity Blues’ college admissions scandal, according to two people familiar with the matter,” Politico’s Daniel Lippman reports.

“Littlefair resigned earlier this month; his mother, Karen Littlefair, of Newport Beach, Calif., was charged on Monday with one charge of wire fraud conspiracy. She agreed to plead guilty in an agreement signed on Nov. 11.”

IMPEACHMENT MINUTE: A speed read on the latest from the congressional impeachment inquiry.

“House Judiciary debates articles of impeachment against Trump.” By The Post’s Michael Brice-Saddler, Colby Itkowitz, John Wagner and Elise Viebeck 

“House Democrats brace for some defections among moderates on impeachment of Trump.” By The Post’s Rachael Bade and Mike DeBonis 

“Senate Republicans look to hold short impeachment trial despite Trump’s desire for an aggressive defense.” By The Post’s Seung Min Kim, Paul Kane and Rachael Bade 

“In new legal memo, White House budget office defends withholding aid to Ukraine.” By The Post’s Jeff Stein and Josh Dawsey

POCKET CHANGE

— Aramco starts trading: “The Saudi Arabian Oil Company, the most profitable commercial enterprise in the world, started trading shares, a week after its long-awaited listing on the Saudi Arabian stock exchange broke the record as the largest initial public offering (IPO) in history,” my colleague Sarah Dadouch reports.

“The company, known as Aramco and frequently dubbed the “crown jewel” of Saudi Arabia, was partially privatized as part of a campaign by Saudi Crown Prince Mohammed bin Salman to wean the kingdom off its dependence on oil.”

— Fiat Chrysler’s UAW ratify new contract: “ The United Auto Workers (UAW) union said “that rank-and-file members at Fiat Chrysler Automobiles have voted in favor of a new four-year labor contract with the automaker, helping the Italian-American firm avoid a strike as it works to merge with France’s Groupe PSA,” Reuters’s Nick Carey reports.

“Fiat Chrysler (FCA) and PSA, the maker of Peugeot and Citroen, in October announced a planned $50 billion merger to create the world’s fourth-largest automaker. FCA’s 47,200 rank-and-file UAW members voted 71% in favor of the new contract. The deal follows contracts the UAW already concluded with larger rivals General Motors Co and Ford Motor Co.”

— Gas, rents lift consumer inflation: “U.S. consumer prices increased solidly in November, which together with labor market strength could support the Federal Reserve’s intention to keep interest rates steady indefinitely after reducing borrowing costs three times this year,” Reuters’s Lucia Mutikani reports.

“The report from the Labor Department … also showed underlying inflation firming last month. The U.S. central bank held rates unchanged on Wednesday amid expectations the economy will continue to grow moderately next year and unemployment remain low. The Fed again signaled a pause in the easing cycle that started in July when it cut rates for the first time since 2008.”

— JPMorgan takes aim at rivals: “JPMorgan Chase & Co. is taking a bigger swing at wealth management, revamping its business units in an effort to better compete with big-bank rivals such as Morgan Stanley,” the Wall Street Journal’s David Benoit reports.

“The bank is creating a unit that will combine its U.S. wealth-management operations for affluent clients and the Chase branch network’s financial-advisory business, according to a memo reviewed by The Wall Street Journal. The restructured business will also include JPMorgan’s new You lnvest online brokerage, the memo said. JPMorgan is facing an industry where big rivals and hot startups are fighting to appeal to millennials and first-time investors. Charles Schwab Corp. announced last month it would buy TD Ameritrade Holding Corp., cementing its hold in discount brokerages.”

— Nikki Haley faces protests at Goldman: “Goldman Sachs Group Inc. employees are complaining to executives over a scheduled appearance … by Nikki Haley at the firm’s New York offices following the former South Carolina governor’s recent comments on the Confederate flag,” Bloomberg News’s Sridhar Natarajan reports.

“Several employees, including members of the firm’s Black Network, have reached out to Goldman President John Waldron, among other senior managers, asking that the engagement be called off. Waldron is slated to interview Haley as part of the ‘Talks at GS’ series in which Goldman executives interview prominent public personalities … Goldman executives fielding the complaints have responded with assurances to employees that they intend to ask challenging questions.”

MONEY ON THE HILL

— Congress is cramming before the holidays: “Over the next 12 days or so, the House and Senate expect to reel off a litany of last-minute legislating that will attempt to make up for months of institutional inaction,” my colleague Paul Kane writes, comparing the current Congress to what happened during the Clinton impeachment.

“The other initiatives will include everything from the predictably overdue items that must pass every year — funding bills for federal agencies and Pentagon policy — to the more sweeping plans to create a new Space Force and approve the most important trade deal in at least two decades. Time is so short, as lawmakers set a tentative goal of exiting town Dec. 20, that leaders now only expect a day of formal debate on the House floor for the United States-Mexico-Canada Agreement.”

— Lawmakers deadlocked on tax extenders: “Lawmakers deadlocked over tax measures might not take action before they adjourn for the rest of the year, creating uncertainty for the biodiesel industry, medical-device makers and restaurants that have been pressing for tax breaks,” the WSJ’s Richard Rubin reports.

“Republicans and Democrats in Congress have been struggling for much of the year to reconcile competing tax agendas, and recent talks haven’t yielded a breakthrough, lawmakers said Tuesday. They may yet agree on a deal, perhaps a scaled-back collection of tax breaks added to a year-end spending bill. But so far, no single must-pass provision has emerged as important enough to drag along the rest of the items.”

— The purity test of past business ties worries some Democrats: “Pete Buttigieg’s recent disclosure of his former consulting clients intensifies a growing battle between Democratic presidential candidates over their ties to the private sector, worrying some in the party that an escalating series of purity tests could turn off voters and convey an exaggerated disdain for business,” my colleagues Sean Sullivan and Matt Viser report.

“The Democratic Party has long included a vigorous anti-corporate strain, but now the debate has turned more personal. The candidates’ back-and-forth about their professional and financial ties has put several on the defensive about everything from former legal clients to junior consulting work to donations from company executives.”

Study: Warren’s wealth tax raises less than projected. WSJ’s Richard Rubin: “Elizabeth Warren’s wealth tax would raise $2.7 trillion over a decade, $1.1 trillion short of her presidential campaign’s estimates, according to a new analysis from the Penn-Wharton Budget Model.

“The difference stems in part from disagreement over the pervasiveness of tax avoidance. Still, the new study projects that the wealth tax would raise more money than critics such as former Treasury Secretary Larry Summers have argued, and the analysis suggests it could be a significant new revenue source targeted at very few people.”

THE REGULATORS

— CFTC studying climate risk. Reuters’s Ann Saphir: “The first public report on climate-related risks to financial markets ever commissioned by a U.S. market regulator will be out in June, the head of the group charged with writing it said on Wednesday… It will include policy recommendations on oversight, including disclosures and stress testing against climate events, as well as ideas for new products for hedging against climate risk.”

DAYBOOK

Today:

• Costco, Adobe and Oracle are among the notable companies to report their earnings, per Kiplinger

Friday:

• The Commerce Department releases the latest retail sales numbers

THE FUNNIES

BULL SESSION