Trump’s Weaker Dollar Dream at Odds With Strong Economy Promise

• Trump’s Weaker Dollar Dream at Odds With Strong Economy Promise

President Donald Trump has signaled his preference for a weaker dollar and low interest rates. He may end up with neither if the U.S. economy continues to recover and he delivers on his ambitious agenda of tax cuts and infrastructure spending.

Trump indicated in an interview Wednesday that the U.S. currency is getting so strong that it’s harmful to the economy. “I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me,” he told the Wall Street Journal. “But that’s hurting — that will hurt ultimately.”

The president also left open the possibility of renominating Janet Yellen as Federal Reserve chair for another term, adding he likes “a low interest-rate policy.” U.S. 10-year bond yields slumped and the dollar fell after his remarks were published. Her current term as chair expires in February.

Trump might want to be careful with all that he wishes for. Evidence of a strengthening job market has prompted the Fed to raise rates twice since he was elected president in November.

U.S. stocks have since rallied almost 10 percent and the dollar has held up on optimism that he’ll carry out a plan to cut taxes and boost spending on infrastructure. The bullish sentiment has recently faded on doubts about whether the administration can follow through.

“If you take Janet Yellen at her word, rates are rising because of increased confidence in the durability of the labor market and the economy,” said Scott Clemons, chief investment strategist at Brown Brothers Harriman in New York. “I can only think of only one major central bank on the face of the planet that’s looking for reasons to raise interest rates, and that’s the Fed. The path of least resistance should be a stronger dollar.”

Trump’s blunt remarks about the greenback mark a departure from the recent practice of presidents, who have generally steered clear of commenting on the value of a currency that markets are supposed to set. Those observations are usually left to the Treasury secretary, and the standard line is that a strong dollar is good for America.

“The true meaning of the policy was that the U.S. wouldn’t try to talk the currency up or down,” said Brad Setser, a senior fellow at the Council on Foreign Relations who previously worked on currency policy at the Treasury Department. “This is a significant shift.”

The bigger question is how Trump can coax the dollar lower and still promise to inject fiscal stimulus, Setser said. “Historically, a bigger fiscal deficit has put upward pressure on the dollar.”

A weaker dollar that makes U.S. exports more competitive might help Trump fulfill his campaign promise to reduce a gaping trade deficit and stem the loss of America manufacturing jobs. While the president backed down from his pledge to label China a foreign-exchange manipulator in Wednesday’s interview, he insisted that other nations continue to devalue their currencies.

“I don’t see why the president shouldn’t be allowed to talk about this,” said Joseph Gagnon, a former Fed official who is now a senior fellow at the Peterson Institute for International Economics. “The strong-dollar policy has outlived its usefulness.”