On Powell at Jackson Hole, and Over the Edge with China

https://trendmacro.com/system/files/reports/20190823TrendMacroLuskin-T3.pdf
Donald L. Luskin
Friday, August 23, 2019
“Trade uncertainty” got bigger today. Powell doesn’t realize how tight that makes the Fed.
Strategic view: 

New tariffs from China on soybeans they aren’t buying anyway, and another “blame Trump” speech from Powell at Jackson Hole. On Twitter Trump compared Powell to Xi, and ordered US companies to explore alternatives to China, and US carriers to interdict Chinese fentanyl shipments. For Powell “trade uncertainty” is an excuse, but it’s nevertheless real, driving wide risk premia that tighten financial conditions. Easier monetary policy is the obvious response, but Powell acts as though there is something especially difficult about it, as it concerns “international trade.” The Fed will cut rates for sure, but with it already having been too tight, now it would take a 75 bp cut to un-invert the yield curve. For trade and the Fed, things still have to get worse in order to get better.