Trump blasts Fed 'incompetence' as his trade war roils stock markets again

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In his morning tweets, US President Donald Trump has switched from blaming China for all of America's misfortunes to the Federal Reserve, calling on the Fed to accelerate interest-rate cuts. "They must Cut Rates bigger and faster, and stop their ridiculous quantitative tightening NOW".

In a series of tweets, he noted that overnight three central banks - those in India, Thailand and New Zealand - had cut rates.

The US Federal Reserve cut the interest rate by 0.25 percent on July 31 for the first time since the 2008 global financial crisis.

Earlier Germany reported industrial production had fallen much more than expected in June, with declines across the board in capital, consumer and producer goods, heightening fears of a recession in Europe's largest economy and sending government bond yields to record lows. The president abides by the school of thought that - by making exports cheaper - a weaker dollar would help the USA compete against other countries.

China's willingness to hold out for a deal was shown in their aggression with counteracting Trump's latest tariffs.

Trade war may escalate to currency war, hurting Japan
Trade weakness has added to pressure on Xi's government to shore up economic growth and avoid politically risky job losses. Analysts say the recent weakening of the Chinese yuan to below 7 to the dollar could boost metal exports going forward.

Federal funds futures implied traders were fully positioned for the USA central bank to cut rates at its September 17-18 policy meeting, with a 28% chance it might lower them by half a point, according to CME Group's FedWatch program.

"Even the perception that monetary-policy decisions are politically motivated, or influenced by threats that policy makers won't be able to serve out their terms of office, can undermine public confidence that the central bank is acting in the best interest of the economy", the former Fed chairs wrote in an op-ed in The Wall Street Journal on Monday. He said the Fed needs to lower rates a bit, but followed that up by saying he'd like to see them cut 100 bps.

But taking economic growth, employment and inflation into consideration, the Fed could have waited for some time before cutting the interest rate.

Also, the Fed's previous interest rate hikes increased the real interest differentials between China and the USA, putting more pressure on China to depreciate its currency and increasing the risk of foreign exchange outflow.

Trade, as Powell pointed out last week, is an "unusual" factor for central bankers to consider when weighing future policy moves to keep the economy on an even keel. "And coming into question is the broader fundamental strength of economies around the world".

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