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William Pesek

Forgotten amid Donald Trump’s trade war insanity and diplomatic dumpster fires was Asia’s biggest fear entering into 2018: an aggressive US Federal Reserve.
Six months into his Fed chairmanship, Jerome Powell has been the picture of calm, probity and reason. His team only raised interest rates twice, 25 basis points in March and another step in June to a target of between 1.75 per cent and 2 per cent.
But is the Fed about to reprise its role as the Asian spoiler? The odds are rising with a US economy firing on all cylinders, and a US$1.5 trillion tax cut adding fuel.
We’ll learn just how much on Friday,when Powell headlines the Fed’s annual Jackson Hole retreat in the majestic mountains of Wyoming.
There’s nothing majestic about world markets, though, as Trump’s tariffs throw China, Turkey and any number of Asian “allies” off balance. Singapore is warning about a rocky second half. South Korea is seeing a marked downshift in exports and capital spending.
In Tokyo, Trump’s best pal anywhere, Prime Minister Shinzo Abe just saw exports to America plunge 5.2 per cent in July from a year earlier. It’s not an exaggeration to say shipments of cars skidded off a cliff - by 12.1 per cent. That, even before Trump’s proposed 25 per cent tax on all auto imports is enacted.
Accelerated Fed tightening, arguably warranted by drum-tight labour markets, would create quite the dilemma for Asia. For one thing, it would increase the gap between US bond yields and those of developing economies.
Another 1997-like Asian Financial Crisis is wildly unlikely, but higher US rates and a rising dollar are causing control problems for twin-deficit economies - those carrying both budget and current-account imbalances. That puts India, Indonesia and the Philippines at a disadvantage to China, Japan, South Korea and Taiwan.
Look no further than Bank Indonesia, which last week hit the brakes for the fourth time since May to support the rupiah. Or the Philippine central bank announcing its largest rate increase in a decade. The Bank of Korea’s preference is to tighten later this month.
China and Japan are leaning the other way. The People’s Bank of China reopened the credit spigot, a move aimed at counteracting the fallout from Trump’s 25 per cent tariffs on US$50 billion of Chinese goods. Almost daily, he threatens to up the ante to as much as US$500 billion. The Bank of Japan, meantime, says it remains committed to “continuous powerful monetary easing.”
Here’s where the Trump effect clouds the outlook. As the dollar rises, the yuan and yen are weakening in ways that might enrage Trump. Since last month, he is hinted via tweets and interviews that he’ll be displeased if the Powell Fed continues to tighten. It’s a wildly unique turn of events for an intensely independent institution.
Hence the importance of Powell’s speech this week. Each August, these Wyoming confabs draw top monetary policy and government officials from around the globe. And often, they coincide with market crackups.
In 1997, central bankers were there in Wyoming when contagion from Thailand’s baht devaluation a month earlier had begun to slam Wall Street. A year later, the Jackson Hole Lodge was the site of strategies about Russia’s default and the imminent collapse of hedge fund Long-Term Capital Management. Ten years later, the talk there was about credit-market dislocations that would soon undo Lehman Brothers.
This week, central bankers will talk about Turkey, Trump’s trade war and what might go wrong next. Yet no question looms larger than whether Powell is keen to be a Trump yes-man or do his job and accelerate rate hikes.
Anyone planning a holiday might want to stay close to a phone.
William Pesek is a Tokyo-based journalist and author. He has written for Bloomberg and Barron’s


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Central banks

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Traders on the phone on 20 June 2002 at the Sao Paulo Stock Exchange (Bovespa) in Sao Paulo, Brazil. Rating agency Moody's Investors Service said 20 June 2002 it had cut its outlook for Brazil's foreign currency credit ratings to "negative" from "stable" because of deteriorating investor sentiment. Investors' confidence has been undermined by "perceived uncertainties associated with the outcome of the October election," the agency said, "despite the present government's maintenance of a sound macroeconomic policy mix." Photo AFP

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A man checks foreign currency exchange rates outside a currency exchange shop in an Istanbul's market, Friday, Aug. 10, 2018. A financial shockwave ripped through Turkey on Friday as its currency nosedived on concerns about its economic policies and a dispute with the U.S., which President Donald Trump stoked further with a promise to double tariffs on the NATO ally. . (AP Photo/Mucahid Yapici)

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(FILES) In this file photo taken on July 25, 2018 (FILES) In this file photograph taken on July 25, 2018, US pastor Andrew Craig Brunson is escorted by Turkish plain clothes police officers to his house in Izmir. - The US warned Thursday it would levy more sanctions on the troubled Turkish economy if Ankara does not soon release a jailed American pastor described by President Donald Trump as a "hostage." (Photo by - / AFP)

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JPG for ONLINE

A man uses a mobile phone to take a photograph of international currency exchange rates on display outside a bureau in the Grand Bazaar in Istanbul, Turkey, on Friday, Aug. 10, 2018. A plunge in the lira sent tremors through global markets on Friday as tensions flared between the U.S. and Turkey, a pair of NATO allies. Photographer: Ismail Ferdous/Bloomberg

(FILES) In this file photo taken on July 11, 2018 US President Donald Trump (L) talks to Turkey’s President Recep Tayyip Erdogan (R) as they arrive for the NATO summit, at the NATO headquarters in Brussels. - Trump said on August 10, 2018, he had doubled steel and aluminum tariffs on Turkey, adding to pressure on that nation's troubled economy amid a diplomatic row with Washington. "I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar!" Trump said on Twitter. (Photo by Tatyana ZENKOVICH / POOL / AFP)

A picture shows a digital billboard giving updates on various currencies in Istanbul on August 13, 2018. - Turkey's troubled lira tumbled on August 13 to fresh record lows against the euro and dollar, piling pressure on stock markets on fears the country's crisis could spill over into the world economy. (Photo by Yasin AKGUL / AFP)

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Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


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