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(Bloomberg) — President Donald Trump wants a weaker dollar to help boost exports, and is counting on the Federal Reserve to help make that happen. But the central bank’s chairman, Jerome Powell, has made clear it’s not his job.
It’s a new twist in the broader pressure campaign the president has brought to bear on Powell to cut interest rates to energize the stock market and fuel growth.
Trump’s focus on the dollar surfaced last week after the European Central Bank said it might ease policy, prompting the euro to drop against the dollar. Trump seized on the move to say on June 18 that the Fed’s failure to lower rates was putting U.S. exporters at a competitive disadvantage. He later mused on June 26 he’d rather have ECB President Mario Draghi running the Fed.
Powell, once again, is finding himself on the defensive, trying to shield the Fed from political influence. He deflected Trump’s calls back at the administration.
“The Treasury Department — the administration — is responsible for exchange rate policy — full stop,” Powell said June 25 in response to a question from the audience after a speech in New York. “We don’t comment on the level of the dollar. We certainly don’t target the level of the dollar. We target domestic economic and financial conditions as other central banks do.”
Trump has explored options for removing or demoting Powell over the Fed’s interest rate decisions, which the president says have hampered growth. And the currency comments offer yet another point of tension between the world’s most powerful leader and its most influential central banker.
Last week, Trump accused both Europe and China of weakening their currencies to gain a competitive advantage. Some Wall Street banks are questioning whether the U.S. might intervene in currency markets.
“Make no mistake about it, what Draghi and other central banks are doing is the same as what China is doing — weakening their currencies,” said Dan DiMicco, who was an adviser to Trump’s campaign and presidential transition and now sits on an administration trade advisory committee.
The Trump administration has from the start deviated from a 20-year-old policy that a strong dollar was in the nation’s best interest. Treasury Secretary Steven Mnuchin said in 2017 that an “excessively strong dollar” could have negative effects on the American economy, and Trump has made similar comments since taking office.
“The repeated, intense comments by the president lead me to believe that we’re no longer pursuing a strong dollar policy,” said Nathan Sheets, chief economist for PGIM Fixed Income and a former Treasury official from the Obama administration. “This is a distinct, new chapter in U.S. currency management and strategy.
The strong-dollar mantra was developed by then-Treasury Secretary Robert Rubin in 1995. Underpinning it is the view that a robust currency reflects a healthy economy and bolsters foreign demand for U.S. debt by reducing the prospect of currency losses. While a stronger dollar helps American consumers by lowering the cost of imports, it also compounds manufacturers’ struggles by making exports less competitive.
Trump has an unlikely supporter in wanting a weaker dollar: Senator Elizabeth Warren, the Massachusetts Democrat who’s running for president. She proposes “actively managing” the dollar to counter foreign investors and central banks’ moves.
Trump and Warren’s ideas “very much could trigger a currency war,” said Fred Bergsten, an economist and author of “The Dollar’s Dilemma.”
But those who advocate that a weaker dollar is better for the U.S. say that former President Ronald Reagan’s administration was able to do it in the 1980s without destroying faith in the greenback.
In 1985, the U.S. worked with five countries, including Germany and Japan, to weaken the dollar in what was called the Plaza Accord. But such a deal is unlikely under the Trump administration, a senior White House official said.
“Our standing internationally is so weak and incoherent that the U.S. can’t pull something like this off,” said Steve Hanke, an economist at Johns Hopkins University.
Yet Trump believes that countries manipulate their exchange-rate through monetary policy, said the official, which is why the president is turning to the Fed for help.
Tokyo — When North Korean leader Kim Jong Un meets with Russian President Vladimir Putin this month for their first one-on-one meeting, he will have a long wish list and a strong desire to notch a win after the failure of his second summit with President Donald Trump.
But it’s not entirely clear how much Putin can or will oblige.
Despite a relationship that goes back to the very foundation of North Korea, relations between Pyongyang and Moscow haven’t always been the picture of comradery, or even particularly close.
What follow is a look at what Kim is hoping to get out of his furtive pivot north, and why he might be looking to shake things up as his talks with the U.S., and parallel campaign to win massive investment from South Korea, have stalled.
Kim’s wish list
Kim has two urgent concerns as he heads to the summit.
More than 10,000 North Korean laborers still employed in Russia, many working in the logging industry in the Russian Far East, are being kicked out by the end of this year as a 2017 U.N. sanctions resolution takes effect. The laborers, who previously numbered as many as 50,000, have provided a revenue stream estimated by U.S. officials in the hundreds of millions of dollars that the Kim regime would like to keep flowing.
Kim is also looking at the possibility of a food shortage this summer. Russia has shown a willingness to provide humanitarian aid and just last month announced that it had shipped more than 2,000 tons of wheat to the North Korean port of Chongjin.
But his decision to more actively court Putin undoubtedly goes deeper than that.
Despite all the talk in Washington about denuclearization, Kim’s primary concern is improving his country’s economy. After the breakdown in his February summit with Mr. Trump in Hanoi, his efforts to get out from under sanctions that are keeping him from doing that have reached an impasse.
Kim has pushed Seoul hard to participate in joint inter-Korean projects to rebuild its railroads and improve its moribund infrastructure. His appeal to Korean unity, however, has run headfirst into the South’s allegiance to Washington, which has warned Seoul against any actions that would undermine sanctions.
According to internal documents obtained by a South Korean researcher and published this week in a Japanese newspaper, Kim wants to boost trade with Russia tenfold — to $ 1 billion — by 2020.
That would obviously require some significant easing of sanctions, which would seem unlikely. But it would also require a change in Russian behavior.
The Kim-Putin meeting, the exact date of which has not been confirmed, is coming surprisingly late in the game.
It’s been nearly a year and a half since Kim announced his plan to emerge from relative isolation at home and expand diplomatic relations with China and South Korea and open denuclearization talks with Washington.
He has since held four summits with Chinese President Xi Jinping, three with South Korean President Moon Jae-in and two with Mr. Trump.
The summitry has done a lot toward establishing Kim as a serious player on the world stage. But the Hanoi summit showed his limitations. It ended with no agreements on either denuclearization measures or the lifting of sanctions, which may now be even more difficult to accomplish since both sides are digging in on hard-line negotiation positions.
Kim’s decision to meet with Putin now may reflect his frustrations over that.
Like Kim, Putin is no admirer of Washington’s use of sanctions as a political tool. Even a cautious statement of solidarity with the North, or a rebuttal of any of Washington’s “maximum pressure” policies, would be a win for Kim.
But Putin has a lot on his plate and good reason to be cautious about making any big new commitments.
He particularly doesn’t want to anger China. Immediately after seeing Kim, Putin will fly to Beijing for a major international meeting on China’s “Belt and Road” initiative, which could be lucrative for Russia.
If Putin chooses to take a more hands-on approach to North Korea, Washington’s efforts to keep Kim’s focus on denuclearization could get a lot more complicated. He has already expressed his opposition to Mr. Trump’s sanctions-centric approach.
It’s also in Putin’s general interest to weaken Washington’s influence in the region — though, like China, Russia does not want a chaotic collapse in the North that would create a wave of refugees and economic instability.
So what’s the bottom line?
Even if he isn’t planning to make any immediate changes in his policies toward Pyongyang, meeting with Kim provides a good opportunity for Putin to reassert himself as a player in a contest for political influence that is, after all, right on his own border.
And for Kim, with the pressure from Washington not likely to let up soon, keeping all options open makes a lot of sense.
(Reuters) – The U.S. Federal Reserve should "proceed cautiously" with interest rate increases, keeping a "keen eye on the data" so as not to raise rates too far or not far enough, Atlanta Fed President Raphael Bostic said on Thursday.
"I don’t think we are too far from a neutral policy, and neutral is where we want to be," Bostic said in remarks prepared for delivery to the Global Interdependence Center in Madrid, Spain. "We may not be there quite yet, but I am inclined to think that a tentative approach as we proceed would be appropriate."
Bostic said that with unemployment at 3.7 percent and inflation at or near the Fed’s 2-percent goal, conditions warrant the "final steps" in adopting a neutral stance of monetary policy. If economic data show clearer signs of overheating, he said, he is prepared to support a more aggressive approach.
The Fed next meets in mid-December, and is widely expected to raise interest rates then.
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