Fed Chair Powell is rather more diplomatic in his language than the president – a low bar, admittedly – but it is clear from his speech that the single biggest factor driving both market volatility, the actual global slowdown, and fears of a U.S. slowdown, is trade policy, both its current stance and uncertainty about the future.
After a long discussion of how the Fed arrived at its current policy framework, Mr. Powell stuck the knife in, pointing out that “fitting trade policy uncertainty into this framework is a new challenge… [there are] no recent precedents to guide any policy response to the current situation… Moreover, while monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade.”
In other words, the Fed has been handicapped by Mr. Trump’s damaging and capricious trade policy, which has made it very hard for monetary policymakers to take a settled view of where the economy is headed.
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