Closed Trump lashes out at China and US Federal Reserve — as it happened

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What happens at Jackson Hole?

Monetary policymakers from around the world have met annually in the mountain resort of Jackson Hole in Wyoming in late summer since 1978, hosted by the Federal Reserve Bank of Kansas City.

Flanked by the Grand Teton mountains, central bankers have used the scenic setting to exchange ideas on the key policy issues of the day, with the Kansas Fed promising “an ideal environment for symposium attendees to discuss economic policy issues away from daily pressures and distractions.”

With a president putting unprecedented pressure on the Fed to act and markets expecting sharp cuts to interest rates, Jay Powell may find it a little harder than usual to put those distractions to one side this year.

A big day for global markets

Welcome to the FT’s live blog of Jay Powell’s address to the annual Federal Reserve conference in Jackson Hole. We’ll be bringing you updates on the central bank chief’s speech in real time from our reporters in Wyoming, New York and London.

The blog officially kicks off at 9am New York time (2pm in London). In the meantime, we’d love to hear from you.

What are your expectations? And what would you like to see us cover? Let us know in the comment section.

US stock futures and European markets hit by China tariffs

It is probably not the backdrop Jay Powell was hoping for ahead of his key speech in just a little over an hour.

China has announced that it will hit $75bn in US goods with additional tariffs. It marks the latest escalation in a damaging trade skirmish.

The trade war has hit major economies across the globe, and the uncertainty it has sparked for corporate America has been a worry for the Fed.

In a sign of the heightened sense of gloom, US stock-index futures took an immediate hit after the tariff announcement. S&P 500 futures are currently down about 0.5 per cent. The European Stoxx 600 index also fell, leaving it down 0.8 per cent in the last 50 minutes.

Investors look for clues on September rate decision

Investors and analysts will be watching for any signs of how the Fed might act at its September policy meeting.

Deutsche Bank economists said:

“The immediate focus of Powell’s speech will likely be whether he affirms that the current easing is a ‘mid-cycle adjustment’ as per the FOMC minutes or align more closely to market pricing.”

Investors might be disappointed if they are looking for anything concrete, however.

“It is premature to expect a signal on the size of the Fed’s September move,” said Morgan Stanley’s US economists who instead expect Mr Powell to maintain flexibility by repeating that the central bank “will act as appropriate to sustain the expansion,” and not offer a clear tilt towards an unusually large 50 basis point rate cut.

“The chance for disappointment in Powell’s messaging is rising,” Morgan Stanley added.

President Trump weighs in

In perhaps the least surprising news of the day, President Trump has continued his long-running push for the Fed to cut interest rates.

A few moments ago he exhorted the central bank to ‘show their stuff.’

Fed rate expectations and the markets

Just in case you needed a reminder of how closely linked expectations for Federal Reserve policy and the trade war are — look no further than today’s China tariff announcement.

It took only seconds for federal funds futures, used to speculate on future fed rate decisions, to move in response to China’s trade escalation.

The chart below shows expectations for the end of this year. The rise indicates a small (but illustrative) tick down in market forecasts for where the Fed’s main rate will end 2019.

Emerging market traders braced for Powell

The Federal Reserve’s policy has a big impact on emerging markets, so traders will be paying close attention to any clues from Jay Powell on the direction of policy.

Piotr Matys, EM strategist a Rabobank, explains:

Remarks from Fed Chairman Powell, who will speak later today at the famous annual gathering of central bankers and economists in Jackson Hole, will set the tone for the CEEMEA currencies.

Volatile financial markets will be looking for a relatively strong reassurance from Powell that under his leadership the Fed will lower interest rates further in the coming months.

The risk, essentially, is that Powell may not be able to make sufficiently strong commitment on behalf of the divided Committee to meet market expectations for more interest rate cuts this year.

Amongst those closely watching Powell’s speech due to start at 15:00bst will be President Trump.

If the US was like Turkey, Trump would have already replaced Chairman Powell with someone who “follows instructions” on interest rates as President Erdogan had done abruptly dismissing Governor Cetinkaya for his reluctance to cut rates

Big announcements at previous Jackson Hole conferences

While the Kansas City Fed’s symposium in Jackson Hole, Wyoming was historically an academic affair, the event has put investors on high alert in recent years.

After all, in 2010, then-Federal Reserve chair Ben Bernanke used his speech to signal a fresh round of stimulus, dubbed QE2. In 2012, he used the platform to present the case for an open-ended increase in the Fed’s balance sheet, aka QE3.

In 2014, it was European Central Bank President Mario Draghi, who stole the show, laying the groundwork for a bond-buying programme. The ECB launched its quantitative easing programme the following year. And in 2016, Fed chair Janet Yellen used it to lay out the groundwork for an upcoming rate rise. There’s good reason investors hang on to every pronouncement made at the American mountain resort.

The Fed’s 2019 ‘sea change’

This year’s Jackson Hole meeting comes amid a change of tack in the Federal Reserve’s monetary policy.

The president of the St Louis Fed, James Bullard, has described a “sea change” in policy this year as slowing growth and trade uncertainty have driven the Fed to shift its stance from one of raising rates, to taking a neutral position, and ultimately to cutting.

The Fed raised rates four times in 2018, with a December hike to between 2.25 and 2.5 per cent marking the ninth since 2015 as the US economy charted a healthy expansionary course. The plan had been for another three raises of the benchmark before leaving it steady at between 3 and 3.25 per cent.

But worries over trade and a growing lethargy in the US economy prompted a change of direction from policymakers. In March the Fed switched to a neutral position, saying it would take a more “patient approach to monetary policy”.

That later ebbed into a more dovish stance, with Mr Powell cutting rates by 25 basis points last month – the first such move since the financial crisis – citing higher trade uncertainty, slower global growth and stubbornly low inflation. However, he described the move as a “mid-cycle adjustment to policy” rather than the start of a more aggressive cycle of monetary easing.

Despite the objections of some policy makers, there is now a probability of over 90 per cent that rates will be cut another 25 basis points in September according to the CME FedWatch Tool, and a roughly 50 per cent chance of further one before the year is out.

Trump keeps pressure on Powell to accelerate rate cuts

President Donald Trump has been a frequent critic of the Federal Reserve, arguing that the central bank crimped US economic growth by raising rates “too fast”.

Mr Trump has directed much of his criticism at Jay Powell, his pick to take charge of the central bank in February 2018. Just this week, Mr Trump likened the Fed chair to a “golfer who can’t putt” and said there would be “big US growth” if policymakers approve a substantial rate cut. The president has told reporters that the Fed should lower the benchmark rate by one percentage point. The last time the Fed deployed such a severe measure during the depths of the financial crisis.

Tom Carroll, head of asset management at Sanlam Investments, said Mr Trump is “eager to avoid having an economic downturn as his running mate for re-election”.

“The fundamentals remain strong, albeit weakening, despite the ongoing trade war. Powell may seek to resist pressure to give the economy a further adrenaline shot until the economic outlook is clearer,” Mr Carroll added.

In other tweets this week, Mr Trump highlighted negative interest rates on German government debt, strength in the US dollar and muted inflation, asking, “Where is the Federal Reserve?”

Market settling on quarter-point rate cut in September

This chart from CME Group shows the market’s odds over time for where the Fed will set its target rate at the September policy meeting.

Investors have settled in the last few weeks on a quarter-point rate cut from the Fed’s current target range of 2-2.25 per cent. As you can see, the odds of a larger half-point cut have slipped to less than 1 per cent.

Some Fed officials not on board the rate-cut train

Even as the market presses for more rate cuts, the US economy has shown signs of resilience.

That presents a challenge for Fed chair Jay Powell and other policymakers, who have sought to temper expectations for an aggressive rate-cut cycle following July’s cut.

Most market participants are looking for the Fed to follow its July rate cut with another one in September. Investors have placed 99 per cent odds of a quarter-point drop in the target rate next month, according to CME Group’s FedWatch Tool, which tracks federal funds futures.

But as the Jackson Hole summit got underway on Thursday, Philadelphia Fed president Patrick Harker and Kansas City Fed president Esther George suggested that there is no case for another cut next month.

“I’d be happy to leave rates here absent seeing either some weakness or some strengthening, some kind of upside risk that would cause me to think rates should be somewhere else,” Ms George, one of two dissenters in the July decision, said in a Bloomberg TV interview.

Mr Harker, who is not a voting member of the Fed’s policy setting committee, told CNBC, “We should stay here for a while and see how things play out”.

In a separate CNBC interview, Dallas Fed president Robert Kaplan said he would “at least be open-minded about making some adjustment” if there was continued weakness in the economy, noting that businesses have grown cautious due to trade developments, despite strong consumer spending.

“I want to take all the time between now and September to assess how the economy is acting and I’d like to avoid having to take further action,” Mr Kaplan said.

Powell has to be ‘somewhat’ careful

For central bankers, every word matters. Traders and analysts will pore over Mr Powell’s speech for any signs of a policy shift. One of the words they’ll be on the lookout for is “somewhat,” according to Morgan Stanley’s economists:

Investors may associate the word ‘somewhat’ with a 25bp [rate cut]. Acknowledgement that downside risks have increased with no characterisation of ‘somewhat’ could be taken as confirmation that it is likely the Fed makes a larger cut in September.

Mr Powell has a little history here. He was one of the architects of the botched Fed communique which ignited a ‘taper tantrum’ through financial markets in 2013.

Fed chair Powell warns trade disputes present ‘new challenge’

Jay Powell, Federal Reserve chairman, said that fitting trade uncertainty into the cental bank’s policy framework was “a new challenge”, in a closely watched speech in Jackson Hole just hours after China announced new tariffs on $75bn of US products.

Read Brendan Greeley’s full take on Mr Powell’s Jackson Hole speech here.

Powell: No recent precedents for a policy response to the trade situation

Jay Powell used strong language on global trade in his speech, as he said the central bank is in an unprecedented situation in recent history as it tries to steer monetary policy through the economic reverberations caused by trade tensions between the US and China.

Fitting trade policy uncertainty into this framework is a new challenge. Setting trade policy is the business of Congress and the Administration, not that of the Fed…There are, however, no recent precedents to guide any policy response to the current situation. Moreover, while monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence,” it cannot provide a settled rulebook on international trade.

No new lines on interest rates

Mr Powell gave no new indication about the outlook for interest rates, repeating a line he has used since June: “We will act as appropriate to sustain the expansion.”

US two-year Treasury holds price gains after Powell

The policy-sensitive two-year US Treasury note is holding on to its price gains as traders digest Federal Reserve chief Jay Powell’s speech.

The two-year yield, which moves in the opposite direction of the price, was down almost 4 basis points at 1.572 per cent in recent trade. The 10-year was down by a slimmer 1.9 bps at 1.59 per cent.

Typically the two-year is seen as more reflective of expectations for near-term shifts in monetary policy. The yield had begun to fall earlier on Friday, when China announced additional tariffs on $75bn of US imports.

‘Further evidence of a global slowdown’

Here is how Jay Powell sees the current economic context:

The three weeks since our July FOMC meeting have been eventful, beginning with the announcement of new tariffs on imports from China. We have seen further evidence of a global slowdown, notably in Germany and China. Geopolitical events have been much in the news, including the growing possibility of a hard Brexit, rising tensions in Hong Kong, and the dissolution of the Italian government. Financial markets have reacted strongly to this complex, turbulent picture … Meanwhile, the US economy has continued to perform well overall, driven by consumer spending.

Powell: Inflation running ‘somewhat below’ target this year

Inflation has been “surprisingly stable” during the US economic expansion but has run “somewhat below” the Fed’s 2 per cent target this year, chair Jay Powell said in his remarks.

He continued:

Thus, after a decade of progress toward maximum employment and price stability, the economy is close to both goals. Our challenge now is to do what monetary policy can do to sustain the expansion so that the benefits of the strong jobs market extend to more of those still left behind, and so that inflation is centered firmly around 2 percent.

Full text: Jay Powell’s Jackson Hole speech

Want to read Jay Powell’s full speech? We’ve just posted it here.

Powell: Fed reviewing policy strategy amid ‘new normal’ for economy

Fed chair Jay Powell said the central bank is asking whether it should expand its toolkit and considering how it can better communicate its policy framework, noting a “new normal” in economic trends:

As we look back over the decade since the end of the financial crisis, we can again see fundamental economic changes that call for a reassessment of our policy framework. The current era has been characterized by much lower neutral interest rates, disinflationary pressures, and slower growth. We face heightened risks of lengthy, difficult-to-escape periods in which our policy interest rate is pinned near zero. To address this new normal, we are conducting a public review of our monetary policy strategy, tools, and communications—the first of its kind for the Federal Reserve. We are evaluating the pros and cons of strategies that aim to reverse past misses of our inflation objective.

Slightly more Fed easing priced-in for 2019

Markets are pricing in a tad bit more easing this year, following Jay Powell’s speech and the China trade escalation.

Federal funds futures now suggest the Fed’s main rate will end the year at 1.58 per cent, down 6 basis points from earlier this morning. The central bank’s rate is currently set at a range of 2 to 2.25 per cent.

(The rise in the fed funds futures contract for December 2019 in the chart below signals a decline in rate expectations).

Trump lashes out at Powel[l]

Donald Trump has responded to Mr Powell’s speech, accusing the Fed of doing “nothing” and making a slightly outlandish comparison between its chairman and China’s premier.

My only question is, who is our bigger enemy, Jay Powel (sic) or Chairman Xi?

He also berated the central bank for not consulting with him:

It is incredible that they can “speak” without knowing or asking what I am doing

Asked and somewhat answered

Mr Powell’s speech examined monetary policy over three phases since World War II.

Looking at the 1950-1982 era, which had multiple expansions and contractions in quick succession, he asked whether the central bank could keep inflation at bay and argued that policymakers could, with policy tightening. The following era, from 1983 through the Great Recession raised questions about whether long expansions lead to destabilising financial excesses.

And the latest, ongoing era, he said raises the question of how best to promote sustained prosperity at a time of slow global growth, low inflation and rates. To this, he said:

Risk management enters our decisionmaking because of both the uncertainty about the effects of recent developments and the uncertainty we face regarding structural aspects of the economy, including the natural rate of unemployment and the neutral rate of interest. It will at times be appropriate for us to tilt policy one way or the other because of prominent risks.

He added, addressing recent challenges posed by trade policy:

There are, however, no recent precedents to guide any policy response to the current situation. Moreover, 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.

Is Powell bowing to the bond market?

Paul Ashworth, economist at Capital Economics seems to think so. He views Mr Powell’s Jackson Hole speech as opening the door to a September rate cut. Referring to the Fed chair’s remarks on Friday, he said:

In particular, he warned that the downside risks have intensified in the three weeks since the July FOMC meeting, when Powell characterised that rate cut as a “mid-cycle adjustment” rather than the beginning of a more extended loosening cycle. In addition to a September rate cut, we also expect the Fed to cut rates by another 25bp in December.

Trump sharpens criticism of China

The US president has followed up his criticism of the Fed by lambasting China, promising a response to Beijing’s latest round of tariffs “this afternoon” and instructing American companies to “immediately start looking for an alternative to China”.

Wall Street lurches lower as Trump blasts China

US stocks extended their declines and Treasuries rallied on Friday after Donald Trump called on US companies to start looking for an alternative to China. His remarks came after Beijing’s on Friday said it would hit $75bn of US goods with additional tariffs from next month. Mr Trump said he would respond to the tariffs “this afternoon”.

Markets did not like the sound of that. The S&P 500 fell 1.6 per cent, while the Nasdaq Composite declined 1.7 per cent. The yield on the US 10-year slid 7.3 basis points to 1.535 per cent, while that on the two-year declined 8.7 basis points to 1.5209 per cent. Yields move inversely to prices.

Gold prices spike on new trade threats

President Donald Trump’s latest salvo against China has pushed gold prices sharply higher as investors flock to the safe-haven asset.

The yellow metal, which saw gains earlier today on news of Beijing’s threat of retaliatory tariffs, jumped as much as 2 per cent and was recently up 1.7 per cent. At a high of $1,527.93 an ounce, gold approached its recent six-year high of about $1,534.30 an ounce.

Package delivery groups knocked by Trump’s fentanyl tweet

The package delivery groups name-checked by the US president in his tirade against China have seen their share prices fall sharply.

FedEx dropped 2.6 per cent, Amazon slipped 1.7 per cent and UPS shed 2.2 per cent.

President Trump said he was ordering all three companies, along with the US Postal Service, to “search for and refuse” deliveries of fentanyl – a pain medication at the heart of the US opioid epidemic – from China

I am ordering all carriers, including Fed Ex, Amazon, UPS and the Post Office, to SEARCH FOR & REFUSE….all deliveries of Fentanyl from China (or anywhere else!). Fentanyl kills 100,000 Americans a year. President Xi said this would stop – it didn’t.

Car makers suffer as Trump goes on the offensive over trade

Shares in car makers around the world fell after US president Donald Trump escalated the trade war with China.

In Europe, the Stoxx index tracking automakers and parts fell 1.7 per cent, with BMW and Daimler down 2.9 per cent and Fiat Chrysler 2.2 per cent lower.

On Wall Street, the index tracking automakers fell 2.5 per cent, as Harley Davidson fell 2.5 per cent, GM was down 2.2 per cent and Ford slipped 2.1 per cent.

US stocks surrender weekly gains

Wall Street stocks had been poised to snap a three-week losing streak … but today’s jolt of market turbulence has quashed those hopes.

The S&P 500 dropped 1.7 per cent on Friday, pushing it down 0.4 per cent on the week, according to Refinitiv data. At Thursday’s close, it had been on track for a 1 per cent rise since last Friday.

Friday’s fall means the benchmark US stock barometer is now down 5 per cent over the past four weeks.

Wall Street’s ‘fear gauge’ at one-week high

The CBOE volatility index is eyeing its highest level in more than a week amid the back-and-forth between China and President Donald Trump.

Known as Wall Street’s “fear gauge”, the Vix index has jumped more than 3 points to 19.84. It has topped 20 frequently this month with stock markets rattled by trade.

US stocks added to losses late Friday morning in New York. The S&P 500 was down 1.7 per cent near session lows.

China’s currency sustains fresh blow

China’s yuan dropped on Friday after Donald Trump responded strongly to the country’s move to slap additional tariffs on $75bn of US goods.

The offshore renminbi, which trades in major hubs outside mainland China, dropped 0.6 per cent in recent action to 7.1327 to the US dollar. It leaves the currency just above its recent trough of Rmb7.1397, Refinitiv data show.

The Trump administration labelled China a currency manipulator after the country let its currency slide below the Rmb7 mark earlier this month for the first time since 2008.

Fed’s Powell Trumped by China comments

Markets have quickly moved on from Federal Reserve chairman Jay Powell’s fairly anticlimactic speech at Jackson Hole, as they sell off on President Trump’s Twitter assault on China and trade.

“Chair Powell’s remarks at Jackson Hole were quickly overshadowed by a further escalation of the US-China trade war,” analysts at TD Securities said.

“We continue to expect the trade war to remain a downside risk to growth and risk assets.”

Expectations on policy should adjust if market understands Fed’s reaction function, JPM says

Jay Powell supported expectations of another rate cut in September, but did not rock the boat in his Jackson Hole speech, said Michael Feroli, economist at JPMorgan. He said the key line in the Fed chair’s speech was: “Along with July’s cut, the shifts in the anticipated path of policy have eased financial conditions and help explain why the outlook for inflation and employment remain largely favorable”.

Mr Feroli explained:

This suggests that failing to meet that anticipation in the near term would result in a less favorable outlook. This doesn’t mean the Fed has to slavishly follow the entire current path of market expectations. If economic developments beyond September are benign then market expectations should adjust,

presuming the market understands the Fed’s reaction function.

Of course there have been times when the market misunderstood that function, in either a too hawkish (2011) or dovish (2017) direction, at which time the Fed

had to bluntly reorient those expectations. This is not one of those times.

No talk of ‘mid-cycle adjustment’

It was notable that Fed chair Jay Powell did not repeat the phrase “mid-cycle adjustment” to describe the central bank’s July rate cut – a remark last month that helped lower investors’ expectations for aggressive cuts.

“Clearly Powell was in favor of the rate cut last month and is in favor of another rate cut next month,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

He added: “Markets liked what he said in his speech – the S&P rose 0.6% from the moment he released his speech until the moment news broke that President Trump plans to respond to new Chinese tariffs this afternoon.”

Mr Zaccarelli went on to note that Mr Powell’s speech has already been pushed out of the spotlight, with stocks falling on fresh trade worries.

And that’s a wrap

Thank you for following along on this busy day for global markets.