America began to play in favor of the ruble
It seems that in today’s America, the audience is more attentive to the speeches of not the first person of the state — the American President, but the head of the Federal Reserve system. First of all, because the real power is concentrated not in the White House, but in the us Central Bank, called the US Federal Reserve. And also because the leaders of the Federal reserve in comparison with the American presidents are usually not so verbose, speak in public relatively rarely. Particularly well the contrast is visible today: a very verbose and emotional, the President of the United States Donald trump and discreet, very careful in choosing each word, the Chairman of the Board of Governors of the Federal reserve and Jerome Powell.
With this in mind, many have been waiting for is scheduled on 10-11 July this year, the performances of Jerome Powell to the U.S. Congress. The first day before the financial services Committee of the House of representatives and the second day before the Banking Committee of the Senate. These are the traditional speeches of the head of the fed, which take place every six months. Questions are expected to Powell from the «people’s deputies» — regarding the state of the world and American economy, planned to launch a new digital currency by Facebook. It is expected that the member of the upper house of Congress Elizabeth Warren, the Democratic candidate in the presidential elections of 2020 will ask questions with a trick concerning trump and his shameless interference in the work of the Federal Reserve. But, most importantly, they want to hear from Jerome Powell — confirmation that all experts have voiced as an obvious fact — the inevitable reversal of the monetary policy of the fed.The signs of such a turn clearly emerged last month, when the next meeting of the US Federal Reserve (open market Committee) was held, at which the issue of the key rate was resolved. The day before it was obvious that the key rate will remain unchanged — at the level of 2.25−2.50%. It was. But more important than that. At last month’s meeting, eight of the Committee’s 17 officials saw a need for at least one rate cut before the end of the year, and Powell told reporters at a press conference that many others were leaning in that direction, too. According to a report released last week by the fed, regulator officials concluded that the increase in the number of duties in the world probably «significantly» affected the slowdown in world trade last year and that «uncertainty about trade policy may be forcing companies to postpone investment decisions and reduce capital costs.»
Translated from this «bird» language into the usual such reasoning and conclusions mean that the Federal Reserve tends to soften its monetary policy. That the short period of «tightening» (about three and a half years), which began in the autumn of 2015 with an increase in the key rate by a quarter of percentage points (from the level of 0-0.25%) and which ended with the termination of the discharge of debt securities from the Federal reserve portfolio in the spring of this year, has already been completed. That a new round of monetary «easing» («pigeon» policy) begins, the previous one covered the period 2008-2014.
And if earlier supporters of monetary «easing» said that they («easing») are needed in order to revive the American economy, to prevent deflation and recession, then this summer there was another argument in favor of «pigeon» policy. Trump a few days after the g-20 summit (where it seems to have agreed with the Chinese leader XI on a truce in the trade war) said that America is declaring a currency war on China and Europe. I. e. begins to play on the depreciation of the us dollar against the yuan and the Euro. And for this it is necessary to include the «printing press» of the US Federal Reserve and lower the key rate.
Powell has not yet reached the rostrum of the Congress, and all the surveys of experts have shown 100 percent of their confidence that at the next meeting of the fed, dedicated to the key rate, it will be lowered. This should happen at the end of this month (July 30-31). Some experts predicted earlier this month that the decline could be as much as 50 basis points (i.e., 0.50 percentage points). However, the latest data on the labor market show quite a good state on it. Therefore, to date, all agree that there will be a reduction in the key rate by only one «step», i.e. 25 basis points.
Incidentally, this is the first reduction of the key rate of the U.S. Federal Reserve over the past 11 years. Also at the moment, almost all experts agree that this will not be the last decline this year. There will be at least another decrease of 25 basis points. That is, the key rate will return to the level of 1.75−2.00%, which was at the beginning of Trump’s presidential term.
An even more convincing argument in favor of the Fed’s policy reversal version is operations on the futures market. The futures market for the fed rate now lays 100% probability of its decline at the meeting on July 31. And a week ago, the figure was 94%, and a month ago — 81%. None of the participants in the futures market doubts about the reversal of the Fed’s policy today.
Of course, Trump would want Powell to act more energetically. But it is clear that the American President is pleased that he managed to force the fed’s head to conduct a «pigeon» monetary policy. Six months ago, he threatened to fire Powell. He even said in his heart that the us economy is more threatened by the Federal reserve than China. Now Trump has calmed down, and Powell will sit in the chair of the fed his term, which expires in 2022. However, if all goes well, then, according to American law, Powell can extend his stay in the chair for the next four years.
Trump is full of strength and energy to fight for the extension of his stay in the White House for another four years (2021-2025). He hopes that he will be able to make the Federal reserve more obedient by introducing «his people» to the Board of governors (only 7 members, including the Chairman). In the spring of this year, he tried to bring his candidates Stephen Moore and Herman Kane to the Board, but he failed. Last week, Trump put forward new candidates — economists Judy Shelton and Christopher Waller for vacant seats on the Board of governors of the fed. Although they have different experiences, both are likely to enthusiastically support trump’s call for lower interest rates. Who knows, maybe one of them will become Chairman of the US Federal reserve in 2022? Of course, if these candidates will be able to hold the Board of governors of the fed and if Trump wins the elections in 2020.We can expect that if the US Federal reserve consistently pursues a «pigeon» monetary policy, the exchange rate of the Russian ruble against the us dollar will grow. It is noteworthy that the us Treasury prepared a regular report this spring on the so-called «currency manipulation» of the countries that are the main trading partners of America. Under the «currency manipulation» refers to a conscious game of monetary authorities in lowering their currencies as much as to improve the trade position of the country in the world.
Traditionally, China has been the main currency manipulator in the reports. Other major trading partners of the USA, even Canada, appeared there. The report of the us Treasury is submitted for discussion to the us Congress, and «people’s deputies» on the basis of the information provided can make decisions on the impact on «currency manipulators» (anti-dumping duties and even the imposition of sanctions). It is noteworthy that in the last report in the list of «currency manipulators» was Russia. Based on the findings of the report, Washington can take additional measures to ensure that the Russian ruble does not fall against the us dollar. Well, Moscow won’t mind that. If you correctly understand the requirements of Washington, Russia must finally get rid of the us dollar in its international reserves and in the conduct of international and domestic payments and operations. It seems to be in Russia’s interests.
P.S. At 17.00 on July 10, Moscow time, Jerome Powell began his speech in the us Congress. There were no surprises. In a language understandable to financiers, the head of the us Central Bank announced the reversal of the monetary policy of the US Federal Reserve. Financial markets reacted positively to Powell’s statements. By 18 o’clock Moscow time, the key us indices added 0.4−0.8%. The dollar lost 0.3% against the basket of world currencies and 1% against the Russian ruble.