On Monday, April 16, President Trump sent the following tweet: “Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable!” The tweet received widespread media attention as shown in this article. But, let’s unpack Trump’s tweet a bit.

Superficially it reads like a criticism of China and Russia for cheapening their currencies to promote their own exports and to make U.S. exports more expensive to local buyers. That’s what the currency wars are all about, and that’s what countries do when they want to steal growth from their trading partners by making their exports cheaper and imports from abroad more expensive.

There’s no question that China was a world class currency manipulator from 1994 to 2012. But, in recent years, China has allowed its currency to strengthen appreciably against the U.S. dollar. China has raised interest rates in lockstep with the Fed to keep their currency from devaluing against the dollar.

It’s true that the Russian ruble has devalued recently against the dollar, but that’s because of U.S. sanctions against Russia, not because of any deliberate policy of the Central Bank of Russia. In fact, Russia has been running a high interest rate policy, which was making the ruble stronger until the most recent round of sanctions. So, Trump’s criticism of Russia and China doesn’t really fit the facts. But, there’s a third party involved in the tweet that Trump does not mention by name.

When Trump says, “…the U.S. keeps raising interest rates” that’s obviously a slap at the Fed. This tweet should be seen for what it is: an attack on Fed independence and a plea for a slower pace of rate increases and a weaker U.S. dollar. The Fed is on track to hike rates in June, but they may be overdoing it and growth may slow significantly by the late summer. In that case, the Fed may take another “pause” in rate hikes in September. If that happens, the dollar will weaken and gold prices will soar.

Presidents tend to get the kind of dollar they want. Trump wants a weaker dollar and the Fed is beginning to get the message.



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