Trump Administration Modifying Stance on Way to G20

As a candidate, Trump took a hardline.  China is manipulating
its currency.  The Federal Reserve is acting to help Clinton get
elected.  The jobs data is fake.  

Over the past week, the each of these three positions has been considerably softened.  It is
hard not to like the US jobs data.  The February jobs growth exceeded
expected, helped by a 28k increase in manufacturing jobs, matching the high
from January 2016, which itself was the highest since August 2013. The U-3
measure of unemployment slipped to 4.7%, returning to the cyclical low, while
the U-6 measure of underemployment fell to 9.2%, which also matches the
cyclical low.  The 2.8% year-over-year increase in hourly earnings is also
near the cyclical peak, which is admittedly lower than past cycles.  

The employment data is not fake or politicized.  The BLS reports
many components and measures.  There is no right or wrong measure. 
The appropriate measure depends on the question one is hoping to be answered.  Like the proverbial drunk
and lamp post, the data can use for
support or illumination. 

Like Bush and Obama, Trump, while on the campaign trail, spoke
aggressively against China. 
Trump promised to cite China as a currency manipulator, and like Bush and Obama
before him has done no such thing. 
Treasury Secretary Mnuchin indicated recently that no decision would be made until the regularly scheduled
review next month.  By the criteria that the Treasury Department has
developed, it will be difficult to claim that China is manipulating its
currency.  The intervention has largely been to strengthen not weaken the
yuan.  Over the last six and 12 months, the value of China’s exports has
fallen.  Last year, China’s trade surplus with the US
narrowed.  

Confirming a less confrontational approach, Trumps’ strategy and policy
adviser Schwarzman,
indicated in an interview on CNN that the US President
is likely to temper his criticism of China.  What Schwarzman hints at, and
the media reports have expanded upon, is that diverse views are represented in
the Trump cabinet and among his advisers.  Those that are most rooted in
liberal globalism are well presented
among the economic advisers and cabinet secretaries.  It does not mean
they will carry all arguments and win all policy debates.  

This is also clear in how the Trump
Administration regards the Federal Reserve. 
During the campaign, one
might be forgiven for thinking that Trump
was running against Yellen.  She was even
featured
in an add that showed Yellen, Blankfein, and Soros (and some
saw as an antisemitic dog whistle).  Trump argued that Yellen had kept
interest rates low to help Clinton’s candidacy.  Many thought Yellen would
resign or get fired.  

This never seemed likely to
us. 
The President does not have the authority to fire the Fed chair,
who is appointed with the consent of the
Senate.  If she resigned, she would
have been the one impinging the central bank’s independence.  We
understood that there was not need for Trump to encroach on the Fed’s
independence.  He would be able to exert influence through the power of
appointment. In the first 18 months or so, we realized Trump would be able to
appoint five of more of the seven governors, including the chair and two vice
chairs.  

Cohn, Chairman of National Economic Council, confirmed as much over the
weekend.
  He acknowledged that the Federal Reserve is going a good
job.   There are press reports that continue to play up the conflict
between the White House and the Fed.   Applebaum from the New York
Times, says today that the two are headed
for a collision, “albeit in slow
motion.”  This does not seem to
be the more helpful description of what is happening.  Fed policy is easy
by nearly any metric one chooses.  Real short-term rates remain well below
zero.   There is no collision between the Fed’s growing confidence in
the US economy and the ability to reach its legislative mandates and a pro-growth
Trump Administration.  

The Trump Administration has also largely stopped talking about the
dollar.
  Most of the comments that worried investors took place in
confirmation hearings.  There are many currencies that are undervalued against the dollar.  This is a result, we argue, in the contrasting
responses to the crisis, and the subsequent divergence of policy. 

Many observers and investors may be surprised that the G20 meeting is a
smooth event without the kind of disruptions that some had feared.
 
Trump and Yellen meet tomorrow, and
Mnuchin and Schaeuble meet later in the week.  The Obama Administration
was increasingly critical of Germany and sought in vain, to encourage it to
offset the contraction in the periphery by the new
stimulus, not a balanced budget.  The Trump Administration is different in
style, but hopes for greater success may rest in German voters’ hands when they
go to the polls in September.  



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