President Trump is counting on the Federal Reserve and renewed trade talks with China to help power the U.S. through an economic obstacle course. The results could affect his path to reelection.
Trump’s campaign for a second term depends in large part on the strength of the U.S. economy and his ability to claim credit for it. This became more challenging on Friday when the Commerce Department issued new numbers showing gross domestic product (GDP) slowed from a 3.1 percent pace in the first quarter to 2.1 percent the following three months.
Trump tweeted a mild acknowledgement of the GDP report, but he focused the blame on the Fed’s 2018 rate hikes.
“Not bad considering we have the very heavy weight of the Federal Reserve anchor wrapped around our neck,” Trump tweeted.
Even though there is a depressing global economic forecast and there is mounting damage from Trump’s trade wars which have taken their toll on American businesses, there are still reasons for economic optimism heading into 2020. Both the labor market and consumer spending are registering historically strong numbers, leading to robust hiring and low unemployment.
But with global risks rising and U.S. businesses beginning to brace for potential economic pitfalls, China and the Fed could have stark implications for the economy heading into a crucial election year.
Beth Ann Bovino, chief economist at S&P Global, said a Fed rate cut would be boon for U.S. consumers. But lowering borrowing costs, she said, might not be enough to nullify trade-related anxiety and other foreign headwinds.
“When we look at some of the business and investment readings, it does look like they’re a little bit more cautious and reluctant to open up their pocketbooks,” Bovino said. “Yes, sure, the Fed is filling up the punch bowl, but how many people are drinking?”
While Washington and Beijing have agreed to hold off on further tariffs while trade talks resume, it’s unclear whether both nations will reach a deal.
Larry Kudlow, the president’s top economic adviser, set low expectations for the upcoming trade talks, saying the goal was simply to “reset the stage” after negotiations collapsed in May.
“I wouldn’t expect any grand deal,” Kudlow told CNBC’s “Squawk on the Street” on Friday.