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Trump Blasts Fed Policies, Euro's Value to the Dollar -- 2nd Update

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06/11/2019 | 12:44pm EDT

By Josh Zumbrun

President Trump renewed his criticism of the Federal Reserve Tuesday morning on Twitter, saying that the Fed has raised rates too high and that its policy of shrinking its bond portfolio is "ridiculous."

The president has repeatedly berated the Federal Reserve for raising interest rates during his time in office, and for its decision two years ago to slowly shrink its $3.8 trillion asset portfolio, a process sometimes referred to as "quantitative tightening." Mr. Trump has blamed the policies for harming the economy, and placing the U.S. at a competitive disadvantage to other countries.

"They don't have a clue!" Mr. Trump tweeted. Mr. Trump has appointed four of the five members of the Federal Reserve's board of governors to their current roles, including Chairman Jerome Powell, and both of the Fed's vice chairmen.

The Fed's asset portfolio grew after the financial crisis as the central bank bought bonds to lower long-term interest rates to help support the economy. The Fed has been withdrawing some of that stimulus by shrinking the holdings -- letting a limited amount of bonds mature each month without reinvesting the proceeds -- but plans to end that process by October.

In a separate tweet, Mr. Trump said: "The United States has VERY LOW INFLATION, a beautiful thing!"

Tuesday morning, the Commerce Department released its latest measure of the prices that businesses receive for their goods and services. The gauge is an indication of underlying inflation pressures in the economy. Compared with May 2018, producer prices were up 1.8%, considerably less than the recent peak. Because the Fed raises rates in part to contain inflation, the soft inflation readings bolster the views of those who, like Mr. Trump, want the central bank to cut interest rates.

The central bank's policy-setting Federal Open Market Committee is meeting next week in Washington to make its next decision about the path of monetary policy.

The immediate impetus for Mr. Trump's Tuesday comments appeared to be a Bloomberg opinion piece about the affordability of European tourist destinations. Mr. Trump said "this is because the Euro and other currencies are devalued against the dollar, putting the U.S. at a big disadvantage."

When other countries' currencies fall relative to the U.S. dollar, their goods become cheaper in the U.S. market while dollars go further when Americans travel, though U.S. goods become more expensive overseas. Mr. Trump has repeatedly mentioned foreign-currency devaluation as a problem, mostly focusing this criticism on China, but his administration has raised concerns as well about European economies.

Although eurozone countries share a currency, and thus don't have a national exchange rate, the U.S. Treasury has placed a number of European countries on a watch list for practices the U.S. says are close to currency manipulation, giving their economies an unfair advantage. The watch list includes Germany, Ireland and Italy -- countries that have large trade surpluses in goods with the U.S.

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com

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