Jerome Powell has singled out the US economy as the “star performer” among its global peers, and has said further that he sees no immediate danger of recession or anything approaching recession.
The governor the Federal Reserve was speaking before Congress as part of a routine appearance before the House Budget Committee.
He added that in his view the cyclical risks that the US economy had been facing were no longer material, and in part, using the nuanced language customary for Federal Reserve officials, credited his own policy of limited interest rate cuts which he implemented earlier this year.
Perhaps not surprisingly, given recent precedent, President Trump also had a word to say about Mr Powell on Twitter this week, as his attempts to nudge or bludgeon (delete as appropriate) the Fed into making further cuts continue.
It seems unlikely that Mr Trump’s noisy grandstanding on the issue will have a serious effect, because although the President can certainly influence markets with his tweets, and some have even argued that the cuts that we have had this year are partly down to his pressure, in fact the Fed seems remarkably sure of its ground.
There are negatives in the US economy of course, and perhaps more to the point these negatives may continue to impact the base from which Mr Trump draws his support. So, while the Fed can draw considerable comfort from recent strong employment numbers, which surprised on the upside, Mr Trump too feels the necessity of clamouring for more because manufacturing continues to contract.
Trump is relying on the blue-collar vote to carry the day in 2020, and if he can’t deliver better news in manufacturing, then he is at least going to provide his voter base with a scapegoat that isn’t him. That scapegoat of course is Mr Powell, who brings the added attraction that he can’t be sacked, and therefore that Mr Trump can keep blaming him if things continue to deteriorate.
If they don’t, guess who will take the credit? But such things are part of the cut and thrust of Washington life, and Mr Powell knew, at least broadly speaking, what he was getting himself into.
“He who sups with the devil should have a long spoon,” goes the saying, and for the time being at least it seems that Mr Powell’s is long enough.
But what about the rest of the world?
Certainly, optimism about the ongoing negotiations with China have helped drive positive sentiment in the market this week, and drive the Dow to fresh new highs. Indeed, the market has hit 19 fresh new highs this year, and there’s not much sign that it won’t hit more if the Chinese deal finally gets done.
And if it does get done then Mr Powell’s optimism about the mitigation of risk to the US economy will likely look justified.
Yes, growth in the rest of the developed world is anaemic, and yes systemic risks of recession remain. But with the US and China back on speaking and trading terms, the global economy ought to be able to breathe a long sigh of relief. In that context it was interesting to see Mr Trump being the one for once to pare back expectations.
Is this another manifestation of his famous “art of the deal” at work?
There’s no question that Mr Trump and China need each other. The question is how much? Both sides have been keen not to be seen to be giving too much ground, but with the wider US economy now underwritten by a hitherto apparently overcautious Fed it may be that Mr Trump senses new leverage.
After all, although China’s growth rate is still strong, easily outstripping that of America, the rate at which its economic growth is slowing is also stronger. And with the US’s new status as a star among its peers, now would seem to be as good a time as any to push US interests as far forward as they can go.
Especially with a Presidential election now just a year away.