Do Trump’s Tweets Increase the Fed Rate Cut Probability?


Jul. 22 2019, Updated 7:36 a.m. ET

  • In his speech on July 18, New York Fed President John Williams’s speech increased the Fed rate cut probability. He highlighted the importance of the Fed acting quickly. He said that “lower rates” are important to “vaccinate” the economy “against further ills.”
  • In a tweet, President Trump said that he liked Williams’ first statement. Williams said that the central bank raised rates “far too fast & too early.” However, Williams apparently didn’t make any such comments.
  • President Trump slammed the central bank. He thinks that the Fed’s “faulty thought process” is hurting the US economy.
  • President Trump told the Fed that “there is almost no inflation!” He asked the Fed not to blow the “chance to build unparalleled wealth and success for the US.”
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Trump tweeted about the Fed

On July 19, the broader market opened on a positive note for the second consecutive day. The broader market ended the few previous sessions in the red. On July 19, the S&P 500 benchmark, the NASDAQ Composite Index, the Dow Jones Industrial Average rose 0.3%, 0.4%, and 0.3%, respectively.

The gains came after President Trump slammed the Fed’s faulty thought process in a series of tweets. He said that the US is paying higher interest rates than economically weaker countries.

President Trump might have misunderstood Williams’ comments. On July 18, Williams spoke during the Central Bank Research Association’s annual meeting. In another tweet, President Trump said that he liked Williams first statement. According to President Trump, Willaims said that the Fed raised rates too early and too fast.

On July 18, Williams increased the probability of a Fed rate cut. He said, “It’s better to take preventative measures than to wait for disaster to unfold.” He also said that “it pays to act quickly to lower rates at the first sign of economic distress.” In the speech, Williams didn’t mention that the Fed raised interest rates “far too fast & too early,” as President Trump claimed.

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Trump versus the Fed

On multiple occasions, President Trump spoke publically against the Fed’s policies and Chairman Jerome Powell. In an interview with the Wall Street Journal in October 2018, President Trump said that Powell hurt “U.S. economic growth.”

In December last year, Trump said, “The only problem our economy has is the Fed. They don’t have a feel for the Market.” Recently, he targeted the Fed in an interview with Fox Business. He said that the Fed “doesn’t know what it is doing.” President Trump said that the Fed is America’s “most difficult problem.”

Rate cut probability

While the pressure on the Fed to cut rates continues to mount, it has already shown its intentions to cut rates at the end of July. On July 10, in Powell’s congressional testimony, he pointed towards low inflation rate and rising economic uncertainties due to the ongoing global trade war and slowing economic growth. He said, “trade tensions and concerns about global growth, have been weighing on economic activity and the outlook.”

Powell’s comments triggered a stock market rally in July. His comments raised investors’ hopes of multiple rate cuts in the near term. The NASDAQ Composite Index, the S&P 500, and the Dow Jones reached their respective all-time highs earlier this week.

Top movers in July

In the tech sector, NVIDIA (NVDA), Apple (AAPL), Alphabet (GOOG), Advanced Micro Devices (AMD), and Micron (MU) have risen 3.6%, 3.9%, 6.0%, 8.7%, and 15.8%, respectively, in July.

NVIDIA, Apple, Alphabet, Advanced Micro Devices, and Micron have risen 27.5%, 30.4%, 9.8%, 78.8%, and 40.8% year-to-date, respectively.

In contrast, General Electric and Boeing have fallen about 4.2% and 0.8%, respectively, in July. Earlier this week, General Motors announced that it would sell the most of its stake in its solar energy business to BlackRock. On July 18, Boeing announced that the financial burden from its grounded 737 Max jetliner planes could reach nearly $7.3 billion, which drove pessimism among investors.

Among the other top gainers, Tesla has risen 13.5% in July. These gains are mainly the result of Tesla’s record second-quarter car deliveries and production figures.

President Trump’s comments might increase the pressure on the Fed to cut rates later in July. However, Powell made it clear last month that he won’t bend to any political pressure.


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