Economic fallout from the Khashoggi murder and Trump's biggest 'threat'

Published 18.10.2018 01:12

"Let's hope we hear the proper answers." This was President Donald Trump's reaction to the murder of Washington Post columnist Jamal Khashoggi in an interview with Fox's Trish Regan on Tuesday. During the interview Trump all but guaranteed there would be no consequences for Saudi Arabia. "If they knew about it, that would be bad, if they didn't know about, bad things can happen," added Trump. In other words, short of actual proof that King Salman or the crown prince had any knowledge of the murder before it occurred, the U.S.-Saudi relationship will be business as usual. In short, Khashoggi's murder and those part of the subsequent cover-up will, unfortunately, go largely unpunished.

"It's $110 billion they are purchasing. It's 500,000 jobs, American jobs," Trump emphasized in follow-up questions noting the current standing order of the Saudi military for U.S. arms. By cancelling those orders or by sanctioning Saudi Arabia, Trump asked "Aren't we just hurting our own country?" And that is the end of the Khashoggi murder investigation in all likelihood. If Saudi Arabia's closest ally is okay with the murder as long as there is no proof it was ordered directly by the top two leaders in charges, then there will be no proof found.

Maybe a few low-level officials will be fired, even imprisoned and take the fall for the murder but the actual murderers left Turkey hours after it occurred. Those with knowledge of the events have either fled or have diplomatic immunity. Turkey's hands are largely tied without the support of allies that can pressure the Saudis, namely Trump. Perhaps some European countries may sanction Saudi Arabia, particularly those with minimal trade ties, but for everyone else, the Saudis will be able to buy their forgiveness.

The half-hour interview was quintessential Trump, all over the board on various subjects including the Federal Reserve. Trump called out that the Fed as his "biggest threat, because the Fed is raising rates too fast." The recent decline in U.S. equity markets weeks before the November mid-term elections couldn't come at worse time for Trump. The Republican Party needs strong headlines going into Nov. 6 and being in the midst of a market correction or even the start of a recession would be the worst timing for the GOP.

While Trump said the Fed is "independent, so I don't speak to him," referring to Trump appointee, Jay Powell, he did add that he wasn't "happy with what he's doing." Trump's constant attacks on former Fed Chair Janet Yellen were easy political points to score, especially as she was a Barack Obama appointee, however, he doesn't have that luxury with Powell. Trump has been both for and against raising rates and often changes sentiments so too much shouldn't be read into his comments. Whether or not the Fed will take notice of his assessment of their performance, however, and slow their rate increases will be interesting to see. My prediction is that the Fed will have to slow their hikes and may suspend the next two scheduled hikes for this year and next. While corrections may be healthy for equity markets, the current global environment is one in which the smallest of sparks may set off panic.

Following Pompeo's meetings with President Recep Tayyip Erdoğan Wednesday, the U.S. most likely has been briefed as to what actually happened to Jamal Khashoggi. My guess is that per his statements, President Trump won't really care. To that end, the murder will be swept under the rug and unfortunately those responsible will escape justice. In the meantime, the Turkish lira has rallied nearly 10 percent since the conviction and repatriation of pastor Andrew Brunson. Barring any unexpected political crises, the lira looks to be calming down in the near term and inflation will most likely slow before the year is out.

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