Michael Greenberg says blurring separation between Fed and administration will increase appeal of global markets
An increasingly chaotic relationship between the US Federal Reserve and President Donald Trump’s administration has heightened the already-appealing growth outlooks of global markets, according to Michael Greenberg.
Trump has engaged in a highly-publicized spat with Fed chair Jerome Powell, with his suggestions of firing the Fed boss resulting in a significant plunge in US stocks and the dollar before rebounding after Trump walked back on his statements on Tuesday. Trump had urged Powell to cut rates, while Powell had hinted at the possibility of raising rates to control pricing pressures.
"There can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW," wrote Trump on a Monday Truth Social post.
Greenberg notes that the historically high investor confidence in US bonds, markets and currency relies upon investor trust of political stability and the separation between state and central bank. Trump’s initial comments suggesting he would fire Powell sent a signal to investors that this separation may not be there forever, according to Greenberg.
“Anything that might suggest this isn’t the case erodes confidence,” says Greenberg, head of Americas Portfolio Management at Franklin Templeton Investment Solutions.
And while Trump has since walked back on his suggestions, saying he “has no intention” of sacking Powell on Tuesday, Greenberg says that investor confidence in the US financial system has dropped considerably due to the fiasco. He says that measuring the impacts of Trump’s comments “depends on the day,” making it difficult to read into the long-term effects of the president’s apparent desire to fire Powell.
Paired with dropping confidence in US markets are increasingly bullish global markets. Greenberg uses the example of the EU and Germany in particular, which has scrapped a historically fiscally conservative budget to promise trillions of dollars in infrastructure and defense spending, heightening growth prospects in the European economy. While the uncertainty from Trump’s policies and rhetoric has been part of the reason Greenberg has begun shifting away from heavy exposure to US markets in his portfolios, he says the strong potential in global markets makes this diversification progressively more appealing.
Predicting the next moves by the Fed has become near-impossible according to Greenberg, who suggests the central bank – like the Bank of Canada – has a dual mandate of addressing inflationary pressures and sluggish growth due to Trump’s tariff’s policies. However, he does see the potential for two more rate cuts in the coming year, pointing to the possibility that certain sectors could see deflationary benefits as demand for consumer products drop. He emphasizes the importance of remaining patient with Fed rates and predicts there could be some kind of visibility as Trump enters the negotiation phase of his tariff policy.
Greenberg says the peak of Trump’s tariff noise is likely to have already passed, as the president has recently indicated an openness to striking deals with countries his widespread tariffs initially targeted. If new deals can be negotiated, Greenberg says uncertainty would be lowered.
