Fed chairman takes swipe at Trump's trade war

President TrumpDonald John TrumpJimmy Carter: 'I hope there's an age limit' on presidency White House fires DHS general counsel: report Trump to cap California trip with visit to the border MORE's feud with Jerome Powell reached new heights Friday as the Federal Reserve chairman delivered his most explicit rebuttal to the president after sustaining more than a year's worth of public attacks.

In a highly anticipated speech, Powell said that while the Fed may soon cut rates to fend off economic headwinds, the central bank is not responsible for resolving the trade disputes driven by Trump.

“Setting trade policy is the business of Congress and the administration, not that of the Fed,” Powell said at the Fed’s annual summit in Jackson Hole, Wyo.

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He argued that 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.”

Trump has sought to discredit mounting concerns about a recession, which could derail his reelection campaign. He and his top aides have played down the fallout from the trade war with China and instead have blamed the Fed for restraining the U.S. economy.

Economists say trade issues do not fall under the Fed's mandate.

“The Federal Reserve is not equipped to fight President Trump’s trade war,” said Joe Brusuelas, chief economist at research firm RSM. “It’s very clear that the Fed has elevated the risks around President Trump’s trade war to the top of the list. That message was received loud and clear at the White House.”

Powell's remarks enraged Trump, who suggested the top Fed official could be a more dangerous threat to the U.S. economy than President Xi Jinping of China.

"We have a very strong dollar and a very weak Fed. I will work 'brilliantly' with both, and the U.S. will do great," Trump tweeted. "My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?"

Though Powell never mentioned Trump by name, his comments were seen as a clear rebuke to Trump's escalating campaign to pressure the Fed into a massive rate cut amid rising anxiety about the U.S. economy.

More than a decade into a record-long stretch of economic expansion, unemployment is at historically low levels, wages are rising and consumer spending is increasing. And even as business investment has dropped and job growth has slowed, the U.S. is outpacing other industrialized nations.

Still, a recent series of economic red flags has sparked fears of an impending U.S. recession in the next 12 to 18 months. Economists have raised their odds for a downturn after weeks of turmoil in the bond market, a contraction in the manufacturing sector and escalating trade tensions.

Trump has long dismissed the Fed’s independence from the administration, arguing the central bank should assist in his trade battles with China and the European Union by cutting interest rates. Lower rates would not only stimulate the economy, it also would make American exports less expensive in foreign markets.

Powell and the Fed have been under pressure from Trump and Wall Street to ease interest rates after hiking them four times in 2018. The central bank held rates steady for the first half of 2019 before cutting them in July for the first time since 2008, as a hedge against global headwinds.

Powell said Friday that while the U.S. economy appeared to be holding strong, the Fed would “act as appropriate to sustain the expansion,” mirroring language he used in June to open the door to a rate cut.

Ryan Sweet, director of real-time economics for Moody’s Analytics, said Powell’s speech “gave markets mostly what they wanted” by acknowledging the risks facing the U.S. while pledging to respond to them.

“Powell appears to recognize that if the Fed doesn’t deliver what markets anticipate, financial market conditions could tighten significantly,” Sweet wrote in a Friday research note, projecting the Fed will cut rates by 0.25 percentage point next month and again in December.

But a moderate rate cut will likely do little to appease Trump, who has called on the Fed to halve the 2 percent to 2.25 percent federal funds rate range. The president’s pressure on the Fed is expected to grow after China announced tariffs on $75 billion in U.S. goods Friday, prompting Trump to threaten retaliation.

Brusuelas said the Fed would only cut rates by Trump’s requested 1 percent in the midst of panic akin to the 2008 financial crisis, but “we are nowhere near that right now."

“What Mr. Trump is asking is highly unusual and it clearly has to do with his prospects for reelection,” Brusuelas said. “It’s signaling weakness and concern about the U.S. economy, not for the sake of the economy and the citizens that inhabit it, but for his political prospects.”