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US-China Trade War: Is the Federal Reserve Ready for a ‘Match’?


May. 22 2019, Published 11:15 a.m. ET

US-China trade war

James Bullard, the President of the Federal Reserve Bank of St. Louis, has made a case for a rate cut given the low inflation. Today, Bullard said in Hong Kong that “a downward policy rate adjustment even with relatively good real economic performance may help maintain the credibility of the FOMC’s inflation target going forward.”

US president Donald Trump has long criticized the Federal Reserve for its hawkish stance. Until last year, Trump had called upon the Federal Reserve to stop its rate hikes. This year, when the Fed abruptly ended its rate hikes and signaled no more rate hikes for 2019, Trump has on more than one occasion said that the Fed should cut rates.

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President Trump

Amid the escalation in the US-China trade war, Trump tweeted earlier this month that “China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a ‘match,’ it would be game over, we win!” Bullard’s comments would be music to Trump’s ears, as he has long advocated for lower rates. However, it’s worth noting that before his election in 2016, Trump had criticized the Fed for keeping rates too low and creating a “false economy.”

Consumers caught in the trade war

Meanwhile, amid the escalation in the trade war wherein the United States has increased tariffs on Chinese goods, companies like Walmart (WMT) and Amazon (AMZN) might have to hike prices. Nike (NKE) and Adidas have also requested President Trump reconsider higher tariffs on Chinese shoes. Read Consumers Are a Casualty on Both Sides of the US-China Trade War for more analysis. US markets have also seen downwards price action this month, and the SPDR S&P 500 ETF (SPY) is down 2.6% so far in May.


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