The King Of Fedsailles

By Bas van Geffen, Senior Macro Strategist at Rabobank

Team Trump has not lessened their attacks on Fed Chair Powell. Last week, the Director of the Office of Management and Budget berated Powell for what he considers to be “too lavish” of a renovation of the Federal Reserve building – or in Vought’s own words, “Versailles on the National Mall.” Speaking on CNBC, the OMB director spoke about “fundamental mismanagement” at the Fed.

National Economic Council Director Hassett, tipped to maybe replace Fed Chair Powell, said: “If there is cause to fire Powell, Trump has the authority to do so”, as another candidate Warsh and Vice President Vance joined in on the attack – which looks coordinated. 

Is the Trump administration creating another bit of pre-text for firing Powell? Because it’s not like Powell is the new Sun King, its just that rates aren’t sinking. Yet, despite all the criticism, Trump still insists he will not fire Powell. Does he just want to have a scapegoat?

Meanwhile, the word “walls” must have come up during the discussions of the US’ own Versailles, and Trump knows exactly who should pay for those. Over the weekend, the US president threatened to slap a 30% tariff on Mexican goods. However, if exceptions continue to apply for goods that comply with the USMCA trade agreement, the impact of this tariff hike will be fairly limited. 

The European Union will also be subject to a 30% tariff, unless the two sides can reach another agreement in the next two weeks. Arguably, that’s progress? I mean, it’s less than the 50% Trump had threatened to impose when trade negotiations did not progress as quickly as he likes. (But the rate is still higher than the 20% Trump unveiled on Liberation Day, and higher than the level Europe would be willing to accept.) 

That also seems to be the Brussel’s interpretation of events: it’s Trump’s negotiating style to put more pressure on the other side in the final stages before a deal is reached. And, as one official put it, Trump will never go through with this, because markets.

European equity markets will undoubtedly trade heavy on the back of these tariff announcements, and the EUR has dropped below 1.1660 at the time of writing. 

And so, European leaders have decided to once again postpone the rebalancing tariffs that have been pending ever since the US raised tariffs on steel and aluminium imports – hoping that they can still clinch a compromise that is acceptable to both sides. Trade Commissioner Sefcovic will speak with his American counterparts later today. 

Meanwhile, the EU also wants to cooperate with other nations that are hit by US tariffs – to do what exactly? The UK seems resigned to the fact that Trump’s baseline tariffs are here to stay.

The EU may seek to reduce its dependence on the US. Japan and the EU plan to create a joint military satellite network, and to start joint development of weapons systems. But none of that is ready overnight, as Germany’s minister of Defence is telling the weapons industry to deliver without further delays. (Or what?)

So, for the time being, Europe remains very much dependent on the Americans. President Trump is due to make an announcement on Russia today. According to Axios’ sources, the president will provide Ukraine with sophisticated military equipment – and not just the defensive kind, but also long-range missiles that could reach targets deep inside Russian territory. And these will be paid for by the EU.

None of this will be cheap, as an FT op-ed underscores the urgent need to Make America Affordable Again. And that doesn’t just go for the US. The Australian Treasury mistakenly let the national broadcaster know it sees taxes need to rise and that not enough houses will be built.

Meanwhile, Prime Minister Albanese, currently in China, refused to answer questions on Australia’s future position on a war between its security shield, the US, and its top export partner, China. But Australia is shocked the US might not commit to its defence; will we see higher tariffs on Australia, or will the US squeeze them in other ways?