DENVER (Reuters) - U.S. President Donald Trump’s criticism of the Federal Reserve has been largely ignored by investors, an apparent vote of confidence in the central bank’s ability to slough off the president’s insults and make independent decisions, economists at Goldman Sachs found in a new study.
But his tweets about trade appear to strike home, and have caused markets to slice roughly half a percentage point from their expectations about where the Fed would set its target policy rate, Goldman economist Ronnie Walker found.
“Markets believe the president primarily affects Fed policy indirectly by influencing the macroeconomic outlook, with at most a limited perceived role for tweets about the Fed,” Walker wrote.
It is a conclusion roughly in line with what the Fed says about itself. Policymakers say that Trump is free to speak his mind - including calling them “boneheads” for not cutting interest rates - but that they base their rate decisions on the economic outlook.
However the trade tweets, including market-rattling statements about ordering U.S. companies out of China, have been associated with policy steps that have raised economic risks and prompted the Fed to act. It has so far cut rates by half a percentage point this year, roughly in line with the change in the market outlook Walker found in his research.
The research looked at the change in market expectations about the federal funds rate a half an hour after Trump tweets. In the case of tweets directed at the Fed, those expectations have fallen by a total of about 0.1 percentage point.
That’s consistent with an earlier academic study that concluded Trump was influencing the Fed. But Walker noted that the impact was not statistically significant when compared with moves in the federal funds rate on days when Trump did not tweet.
“Statistically, the moves in the fed funds futures market following such tweets are not significantly different from those in any given market interval,” Walker wrote. By contrast, “the evidence that President Trump’s trade-related tweets affect market expectations of Fed policy is strong.”
A Reuters poll of economists earlier this year found that 80% felt Trump’s tweets did not influence the Fed. A poll of individuals found his tweets had little impact on the public’s view of the central bank or the value of its independence in setting monetary policy.
Reporting by Howard Schneider; Editing by Andrea Ricci