Members of the FOMC might be in their "quiet period" ahead of the July Fed meeting, where the board is expected to cut interest rates by at least 25 bp, but President Trump's attacks on the central bank continue.
In a series of tweets, Trump combines his criticisms of the central bank's "misguided" policy with accusations that other countries are manipulating their currencies and Trump warned that it would be "Far more costly" for the Fed to wait to cut interest rates should a downturn take place, than to cut now and prevent a downturn by being proactive.
With almost no inflation, our Country is needlessly being forced to pay a MUCH higher interest rate than other countries only because of a very misguided Federal Reserve. In addition, Quantitative Tightening is continuing, making it harder for our Country to compete. As good.....— Donald J. Trump (@realDonaldTrump) July 22, 2019
....as we have done, it could have been soooo much better. Interest rate costs should have been much lower, & GDP & our Country’s wealth accumulation much higher. Such a waste of time & money. Also, very unfair that other countries manipulate their currencies and pump money in!— Donald J. Trump (@realDonaldTrump) July 22, 2019
It is far more costly for the Federal Reserve to cut deeper if the economy actually does, in the future, turn down! Very inexpensive, in fact productive, to move now. The Fed raised & tightened far too much & too fast. In other words, they missed it (Big!). Don’t miss it again!— Donald J. Trump (@realDonaldTrump) July 22, 2019
In other words, Trump has basically strung together all of his prior criticisms of the Fed to remind policy makers with just over a week to go before their next policy meeting that he's expecting a cut.
As we pointed out over the weekend, analysts at Morgan Stanley actually agree with Trump.
Will the Committee cut by 50bp all at once, or in a gradual fashion reminiscent of the recent tightening cycle? Morgan's Matthew Hornbach asks.
In this regard, we note a deeply held view among monetary policy-makers that near the zero lower bound the Fed must act aggressively when low inflation or a downturn threatens. The message to policy-makers today? Don't keep your powder dry. In addition, our own simulations have shown that, in terms of a positive impact on the economy, 25bp in cuts is a rounding error, while 50bp might be enough to mitigate the downside risks we face today.
And the last three easing cycles all started with a 50 bp cut.