The idea is that the Federal Reserve Open Markets Committee that makes decisions on US interest rates (and more unusual economic stimulus measures) is not influenced by partisan political pressures and so is free to act in what it thinks are the economic interests of the country. The Fed, in its turn, does not get involved in politics and has remained silent on the wisdom, or otherwise, of the trade policies that the Republican Party is following under President Trump. Of course, as anybody with an interest in Forex fundamentals will know, the political cannot be divorced from the economic world – see Brexit!
Most economic commentators believe that the protectionist trade wars that Donald Trump has sparked around the world (most notably with China) have been a contributory factor in the slowing of the global economy. Ultimately, most analysts think that the move will harm the US economy by pushing up inflation at home as US citizens need to pay higher prices for the foreign goods that they want.
Overnight, India, New Zealand and Thailand have all taken action to ease their monetary policies by cutting interest rates in order to stimulate their economies, largely as a consequence of the sluggish global economy. US stock markets fell sharply, but later regained their losses, the oil price slipped by 3% and gold briefly topped the $1500 an ounce mark.
Trump used the international situation to “Tweet” his displeasure with the Fed:
“Three more central banks cut rates. Our problem is not China – We are stronger than ever, money is pouring into the US while China is losing companies by the thousands to other countries, and their currency is under siege – Our problem is a Federal Reserve that is too proud to admit their mistake of acting too fast and tightening too much (I was right!). They must cut rates bigger and faster and stop their ridiculous quantitative tightening now. Yield curve is too wide a margin and no inflation! Incompetence is a…”
So, one takes it that Mr Trump is none to pleased with the Federal Reserve at the moment.