Presidency launched in contradiction

‘Wait and see’ on Fed-Trump relationship

Shortly before last week’s inauguration, President Donald Trump talked down the dollar, saying its strength is hurting the economy. Some analysts are casting the Federal Reserve’s indications of three rate hikes this year, which would tend to strengthen the currency, as a portent of confrontation between the new president and Janet Yellen, Fed chair.

Trump’s erratic performance in the first days of his administration suggests his approach on the Fed is likely to be disjointed too. Trump’s initial fixation on the size of the inauguration crowd does not bode well. He undermined the PR benefits from making his first official visit to CIA headquarters with a self-aggrandising non-sequitur-studded speech ranting about the media being dishonest for reporting low audience numbers.

Trump’s nominations to fill the two vacancies on the Fed’s board of governors are particularly hard to predict. It is a high priority and the Trump team is moving rapidly. But it’s unclear when those nominations will come and who they will be. One of the positions should go to a community banker. Cynthia Blankenship, vice chair of Bank of the West, and Jeff Dick, CEO of MainStreet Bancshares, are reportedly under consideration. The other is likely to be the first appointment for a Fed vice chair of supervision, as mandated by the Dodd-Frank protocol, but never filled. Thomas Hoenig, former head of the Kansas City Fed, and David Nason, a former Treasury official now heading GE Energy Financial Services, are both being talked about as potential nominees.

Fed officials have been ambivalent about the new president. They seem relieved that there will be some fiscal support for economic growth to take the burden off monetary policy. But they’re wary of too much fiscal stimulus as the economy nears full employment and inflation edges toward its 2% target. Whatever their private misgivings might be on Trump’s policy mix of trade restrictions, tax cuts and deficit spending, they are officially in ‘wait and see’ mode.

It’s no bad thing for the Fed to be out of the public eye for the moment. Sean Spicer, Trump’s press secretary, has explained the new president’s sensitivity on media matters on the grounds of exasperation about constant scepticism throughout the campaign about everything Trump did or said. ‘I think that it’s just unbelievably frustrating, Spicer said, ‘when you’re continually told it’s not big enough, it’s not good enough, you can’t win.’

Trump stirred up the press again soon after the Spicer comment when he reiterated his unsubstantiated claims that millions of votes from illegal immigrants had cost him the popular vote victory.

Amid this media circus, Trump has been signing executive orders to rescind parts of Obamacare, withdraw the US from the Trans-Pacific Partnership, block government funding for non-profit providers of abortion services overseas and authorise the Keystone XL and Dakota Access pipelines.

He has minimised regulatory hurdles for $1tn in infrastructure spending and implemented a range of other genuinely important measures, many of which got lost in early squalls. On Wednesday, he issued the first directives for building a wall along the 2,000 mile Mexican border, which had been one of his first and most controversial campaign pledges.

Today, he is meeting Theresa May, the British prime minister, after telling European newspapers he would be happy to come to a swift bilateral trade accord with Britain.

After her impassioned declaration of national sovereignty last week, Trump and May are likely to share similar views on many issues. For a presidency launched in a hail of contradiction, opening the borders for British goods and closing them for Mexican migrants would at least display a certain symmetry.

Darrell Delamaide is a writer and editor based in Washington and a member of the OMFIF Advisory Board.



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