In the past hour, breaking news headlines and smartphone notifications began to infiltrate the entire world with the following message:
“China to retaliate with new tariffs on another $75 billion worth of U.S. goods, including autos, soybeans”
Naturally, stock market futures plummeted on the news, as any optimism going into what should be a boring late-summer Friday simply vanished. The worse part about this round of tariffs is they begin September 1st; and everyone knows the next move from President Trump will likely be a similar action, which will cause even more headaches for American consumers and farmers.
Or, maybe the next move has already occurred and will be announced at 10:00am NYT, but not by the White House.
Fed Chairman Jerome Powell is expected to address an audience of policymakers and economists this morning at the Federal Reserve’s annual Jackson Hole summit. Those in attendance will certainly be sitting on the edge of their seats, wondering if Chairman Powell will provide a hint that further interest rate cuts will be likely at the next meeting, and beyond. Wall Street will cheer any signal of further easing and overlook the additional tariff announcement.
You would be naïve to believe the announcement out of Beijing was random. It was by design, forcing the hand of the Fed to make a move in hopes of stimulating the U.S. economy.
The world is slowing down and China knows it now needs to play puppet-master in hopes of bolstering its own economy. In order to do this, why not send messages that will help manufacture confidence, not just in the American consumer, but also those in Europe—which happens to be China’s largest and most profitable customer.
Not to create a conspiracy theory, but informed traders are asking themselves if President Trump urged Chinese President Xi Jinping to make the sudden and abrupt tariff announcement, only 90 minutes prior to Powell’s speech.
After all, as stated in the Fed Minutes released on Wednesday, Powell and Co. are focused on the headwinds generated from the ongoing trade war. It’s clear the battle between the world’s largest economies is continuing, thus likely forcing the hand of the Fed to make meaningful cuts of 50, 75, and possibly 100 basis points in the final meetings of 2019.
It’s now President Trump’s turn to respond. However, don’t expect anything meaningful to happen until Chairman Powell finishes his speech in Wyoming.