The implicit message: If erratic trade policy undermines the economy, the Fed’s tools are likely to have only limited ability to overcome the damage. Interest rate cuts in that situation would be like giving pain relievers to someone with a broken bone — better to have than not, but unable to solve the underlying problem.
The speech evidently did not sit well with the White House.
President Trump, who has called on the Fed to cut interest rates by a full percentage point, issued a series of tweets at 10:57 a.m. that excoriated the “weak Fed” and asked: “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?”
He followed that with the ones urging American companies to disinvest from China. The stock market, which had been stable after the Powell speech, plunged.
At 5 p.m., after financial markets closed, the president tweeted that he was escalating the trade war further, applying a 15 percent tariff to $300 billion worth of Chinese imports starting Oct. 1 and raising the rate on $250 billion of imports to 30 percent from 25 percent.
The disconnect between sober, cautious central bankers and erratic policy that puts the economy at risk isn’t unique to the United States. Also speaking at the Jackson Hole symposium was the Bank of England governor, Mark Carney, who described a limited ability to use monetary policy to offset the damage from Britain’s potentially messy exit from the European Union this fall.
“In the end, monetary policy can only help smooth the adjustment to the major real shock that an abrupt no-deal Brexit would entail,” Mr. Carney said, and that ability would be constrained by the need to keep inflation under control.
Beyond the trade wars and Brexit, Mr. Powell’s speech cited a potential Chinese crackdown on Hong Kong protesters and government instability in Italy as factors in a turbulent summer for financial markets.
This content was originally published here.