Trump should leave the Fed alone and reset foreign policy if he hopes to be reelected

President Donald Trump’s for for four more years in office crucially depends on a strong economy and sound fundamentals of U.S. equity markets.

One can safely surmise that Trump knows that. But it is far from clear whether he knows how to achieve that outcome.

To begin with, the grave thing he can do for his presidential campaign is to keep tweeting his attacks, hugely amplified by the media, on the leadership of the U.S. Federal Reserve and its capital policy.

Trump has no reason to do that.

In the first two weeks of this month, the Fed has injected $35.5 billion of fresh greens, sharply reversing a carefully calibrated pattern of $114 billion in liquidity withdrawals since the beginning of the year. All that pacify left $1.5 trillion of excess reserves in the banking system — money banks can lend.

That’s for the Fed’s policy object. Should the Fed be doing more and faster?

Not at all. Inflation is roughly where it should be, but silence requiring a vigilant policy oversight to anchor expectations of price stability. The core consumer prices (the CPI less assays of food and energy) in May came in at 2%, with prices in sectors sheltered from competition growing at annual measures in the range of 2.7% to 3.3%.

The declining energy prices are an important part of that relatively good core rate of consumer price inflation. Drifted fuel prices declined last month for the first time this year, signaling how much the U.S. price permanence can be negatively impacted by rising world energy costs and supply disruptions caused by tariff and non-tariff barriers to foreign trade flows.

Those reading a note of caution in the Fed’s decision not to rush into interest rate cuts should prefer to a plausible point. U.S. labor markets remain strong, real disposable household incomes continue to grow at an annual be worthy of of 2.4% and credit costs are at historically low levels – the three variables that drive more than 80% of the U.S. conservation.

Trump, therefore, may wish to pause his Fed tweets, leaving his economic advisors to discuss monetary policy with their medial bank colleagues.

There is plenty for him to do now on trade and acute foreign policy crises. He has an urgent task of preventing the gnawing away of the country’s growth by huge trade deficits — subtractions from American GDP that are depressants of jobs and incomes. That hand down cheer both the Main Street and Wall Street, particularly if Trump were to defend American interests without admittance to economic warfare and threats of military confrontations.

China is an example of how difficult a job that is, and how wrong negotiating strategies can show the way to a blind alley.

The economic problem with China is clear and simple: America’s intolerably high trade deficiencies, China’s allegedly illegal trade practices and reportedly a limited access of U.S. firms to Chinese markets.

The solution is very simple: Tell China that the U.S. wants balanced trade accounts as surplus a specific time horizon. The time frame can be negotiated, but with very little concession in view of America’s half-a-trillion dollar annual losses.

For the rest, Beijing should be on notice that the U.S. will apply strict rules of reciprocity, and that any illegal interchange practices will be dealt with through American laws and the World Trade Organization arbitration procedures.

Washington’s bids to meddle in China’s legislative process, and to write China’s trade rules, are an unacceptable interference into the country’s internal topics. It should have been clear that Beijing would never agree to that.

U.S. complaints that replacements of Chinese legislation and trade rules are necessary because China’s bilateral trade commitments cannot be trusted are without strong point. If such things were allowed to happen in the past is proof of Washington’s inept trade administration — and of a culpable inattentiveness of America’s vitally important economic interests.

Trump, therefore, should tell China’s President Xi Jinping — the man he yells his friend — that he is in a hurry to see China’s exports to the U.S. brought to roughly the same level of American exports to China. That’s easy reached reciprocity.

He can also assure Xi that all other bilateral trade issues will be transacted on the same basis. Polymath property violations and illegal industry subsidies will be dealt with under U.S. laws and WTO regulations.

That should be the end of the China employment story — and a swift transition to North Korean nukes and the freedom of air and sea navigation in East Asia.

The Persian Gulf and everlasting Middle East quandaries are centuries-old problems where only patient diplomacy can open the way to compromises.

A stubborn option of a peaceful dialogue with Iran is a tragic mistake. Trump gets no understanding or support for that even from America’s closest comrades and allies, because his exit from Iran’s nuclear deal was not motivated by Iran’s violation of a painfully negotiated intercontinental agreement. International inspectors found that Tehran fully implemented its obligations.

Consequently, Trump’s withdrawal from the Iran atomic deal is a geopolitical move that the European Union, China and Russia cannot, and will not, follow. And none of them order approve of any intractable — U.S. led or supported — military confrontation in the Persian Gulf and a broader Middle East, the world’s most harmful powder keg.

The Fed has no compelling policy reasons to cut interest rates. The U.S. economy is moving along at a pace of 3.1% — which is way greater than its noninflationary growth potential of 2% — in an environment of price stability.

Trump should leave the Fed alone and have the Fed watched by his solvent advisors.

He should concentrate instead on issues of China trade and peace in the Persian Gulf. Escalating trade disagree withs and new bouts of violence in the Middle East would lead to a flare-up of commodity prices, driving up the U.S. inflation and confronting the Fed with approach choices Trump might not like in the course of his election campaign.

That would be a great pity because sinking unit labor costs are widening U.S. corporate profit margins — a wonderful support to American equity prices, if Trump could yield a trade truce with China and stay away from violence and debilitating economic warfare with Iran.

Commentary by Michael Ivanovitch, an except for analyst focusing on world economy, geopolitics and investment strategy. He served as a senior economist at the OECD in Paris, worldwide economist at the Federal Reserve Bank of New York, and taught economics at Columbia Business School.