Donald Trump is not known for his love of 12th-century English history but there are echoes of the clash between Henry II and Thomas Becket in the president’s troubled relationship with Jerome Powell, chair of the Federal Reserve.
If Powell feels beleaguered as he prepares to make the most important speech in his 18 months in the job, on Friday, then that’s hardly surprising. The world’s most powerful banker has Wall Street and the White House on his back, both howling for more stimulus.
Like the English king Henry, Trump has only himself to blame. He appointed someone he thought he could trust to do a job, and that person has failed to do what was expected of him. This won’t end well.
Powell’s problem – ahead of his speech at Jackson Hole – is that he has tried to get ahead of the markets but has instead ended up behind the curve. Borrowing costs were raised during 2018 because the Fed anticipated that falling unemployment would eventually generate wage inflation without some pre-emptive action.
But inflationary pressures have remained muted, leaving the Fed open to the accusation that it moved too far, too fast. Wall Street is more worried about the risk of recession than it is about the possibility that the lowest unemployment in 50 years might lead to workers securing more generous pay deals.
That goes for Trump too. He is now little more than 14 months away from election day and, for all his talk about how wonderfully the US economy is doing, knows he is vulnerable if growth slows. The signs are that that is happening.
The latest snapshot of manufacturing was the weakest in almost a decade. Corporate profits have fallen in two successive quarters and margins are being squeezed. There are warning signs that a long business cycle is coming to an end.
As was the case with Henry in 1170, Trump has made his disappointment with his appointee abundantly clear. All that’s been lacking is a tweet declaring “who will rid me of this turbulent priest?”
Trump cannot actually get rid of Powell until his four-year term is up in 2022 but doesn’t really need to. The Fed chairman might be prepared to defy the president; what he will notdaredo is defy the financial markets. Powell has no choice but to signal in Jackson Hole that interest rate cuts are coming. And soon.
Real wolf at the door
August was a wash-out for the high street if the CBI is to believed. The monthly survey from the employers’ organisation showed that in August retailers had their toughest month for more than 10 years. Fears of a hard Brexit, the CBI suggested, were keeping consumers out of the shops.
In recent months, analysts in the City and elsewhere have become sceptical about the CBI’s monthly survey, which is based on a small sample of the bigger retailers and which has tended to be out of whack with the much stronger official data.
There are good reasons to be wary. Consumers have tended to be inured to the twists and turns of the Brexit saga. And factors that tend to support retail activity – low unemployment and rising real incomes – are in place. Consumer spending is currently the strongest part of the economy.
That does not mean the CBI is wrong this time; it just means there is cause for caution. Surveys can give a more up to date picture of what’s happening, especially when the economy is at a turning point.
It might be that consumers have taken fright at Boris Johnson’s pledge to leave the EU on 31 October come what may, even though neither his victory in the race to succeed Theresa May nor his stance on the EU was exactly a surprise.
Up until now the CBI has been the boy that cried wolf. But in the end there was a wolf.