–‘It’’s Something We Would Consider, I Guess.’
–ECB’s Draghi Responds to Trump Tweet
By Denny Gulino
THE WHITE HOUSE (MaceNews) – Talking to reporters before leaving for Baltimore Thursday evening, President Trump softened the denial issued earlier in the day that he might consider an “interim” China deal and then went further, saying it’s something that might be considered.
“It’s something people talk about,” he said, his helicopter whirring in the background. “I’d rather get the whole deal done.” He continued, “There’s no easy or hard. There’s a deal or there’s not a deal.” Then came the key words, “It’s something we would consider, I guess.”
It was the story earlier in the day, published by Bloomberg, that buoyed markets. It said a limited deal could be considered that would allow the U.S. tariffs to be suspended or otherwise lightened in return for some improvement in China’s treatment of U.S. intellectual property plus more farm goods purchases.
Very much aware of the markets’ cheer, Trump began his evening remarks at the ropeline on the South Lawn by saying, “The stock market’s up again … . A lot of good things are happening.”
A CNBC story that a White House official denied that such a deal could be considered interrupted the markets’ joy but only temporarily.
Earlier Thursday Trump again made it clear that among the things he doesn’t care much about is the G-20 consensus that countries should never manipulate currency exchange rates for a competitive trade advantage.
In a morning tweet while his Treasury secretary was being interviewed outside the White House Trump again encouraged the Federal Reserve to cut rates to weaken the dollar.
“European Central Bank, acting quickly,” Trump wrote. “Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports.”
The Fed, he continued, “sits, and sits, and sits. They get paid to borrow money, while we are paying interest!”
A short time later ECB President Mario Draghi, holding his customary news conference in Frankfurt after announcing the latest rate decision, was asked about Trump’s tweet.
“We have a mandate,” Draghi reminded, to reinforce price stability and the European Central Bank subscribes to the G-20 consensus not to depreciate currency exchange rates for a competitive trade advantage. “We don’t target exchange rates,” he said. Fed Chair Jerome Powell has said the same thing on occasion.
As it happened, the dollar indices did sag slightly in currency markets.
The Federal Open Market Committee meets for two days next week, this time generating another set of quarterly economic projections. The CME’s Fedwatch Tool shows only brief and very slight slippages in the near certainty in the markets that the FOMC will deliver another quarter-point fed funds cut, returning to the current 88.8% probability.
Having ridiculed the Fed leadership as “boneheads” on Wednesday, Trump has lately included his Fed criticism in his series of tweets nearly every day lately.
Mnuchin, interviewed first on CNBC and then by reporters on the driveway in front of the White House Thursday morning, was not asked about the Fed but he did inaugurate some new language about the dollar. He told CNBC that the U.S. favors a “stable” dollar, instead of what became a mantra of his immediate predecessors in the office, that a “strong” dollar is in the national interest.
In Thursday morning trading, the dollar weakened for a time versus the euro before strengthening again.
Mnuchin also confirmed that the major change in policy toward Fannie Mae and Freddie Mac is not only theoretical, as he outlined earlier in the week before the Senate Banking Committee, but is imminent. He told CNBC that the “sweep” of GSE profits to Treasury that has accompanied conservatorship may be ended as soon as Sept. 30 if negotiations with the FHFA proceed as planned.
The GSEs’ shares continued to skyrocket on the news, gaining more than 6% Thursday having seen double-digit gains earlier in the week.
Mnuchin has said the Treasury backup will remain in place as the GSEs recapitalize, and that they will have to pay a price to Treasury for the protection, which would kick in after the “first-loss” liability of shareholders.
Back to China, speaking to reporters, Mnuchin said he does not necessarily expect Beijing to reciprocate for the “goodwill gesture” Trump announced in a tweet Wednesday evening, that the U.S. will delay for two weeks the 5 percentage point stepup in tariffs previously set for Oct. 1.
Did Trump expect anything in return? “I don’t there was anything specifically in return,” he said. “This was an issue that Oct. 1 had a big significance to them which was their 70th anniversary. The vice president asked us to delay it and the president agreed.”
He also delivered slightly more details about how the administration is approaching the knotty issue of the U.S. ban on China’s huge telecom Huawei. The portion of Huawei’s business that relates to U.S. national security, the equipment that would establish a 5G cellphone network, he said, is off limits in trade talks. Presumably that allows some leeway in relaxing the ban in the retail arena.
“There are national security issues associated with Huawei and those are not things we are discussing,” Mnuchin said. “The Department of Commerce is looking at waivers for certain issues that are not national security.” He added, “There are two sides to that.”
China is seen to be mostly interested in resuming the supply channel of critically important semiconductor chips from the United States, which Mnuchin did not touch on.
Mnuchin said there is no thought of softening tariffs against China without a deal that includes protection of intellectual property and other frequently mentioned factors. “There’s no question,” he said, “the only reason why China is seriously negotiating with us is because of the tariffs.”
Mnuchin said a deputy-level meeting with the Chinese is set for next week or the week after. He and U.S. Trade Representative Robert Lighthizer expect to meet their counterparts from China in October. “My expectation is they’ll be here in October unless something changes,” he said.
Mnuchin also said the Treasury is “actively considering” issuing 50-year bonds next year, saying feedback from the bond market as to what could be the demand will be an important factor. “We’ll consider 100-year bonds at an appropriate time” later, he said.
Finally. Mnuchin said the crypto currency Libra being developed by a consortium that includes Amazon “is a long way away – if ever.”
“I think we’ve been very clear,” he said. “I’ve had very direct discussions with the consortium that before we approve this in the United States and the U.S. dollar, which is around the world, we would make sure there are very serious conditions put in to make sure that it’s not used for terrorist financing, it’s not used for money laundering.” As of now, he said, “They have not met those conditions. They don’t have a plan to meet those conditions.”