President Donald Trump said Wednesday that his administration would not label China a currency manipulator, backing away from a  campaign promise, even as he said the U.S. dollar was “getting too strong” and would eventually hurt the economy.

In an interview with The Wall Street Journal, Trump also said he would like to see U.S. interest rates stay low, another comment at odds with what he had often said during the election campaign.

A U.S. Treasury spokesman confirmed that the Treasury Department’s semiannual report on currency practices of major trading partners, due out this week, would not name China a currency manipulator.

The U.S. dollar fell broadly on Trump’s comments on both the strong dollar and interest rates, while U.S. Treasury yields fell on the interest rate comments, and Wall Street stocks slipped.

Trump’s comments broke with a long-standing practice of both U.S. Democratic and Republican administrations of refraining from commenting on policy set by the independent Federal Reserve. It is also highly unusual for a president to address the dollar’s value, which is a subject usually left to the Treasury secretary.

A day-one promise

“They’re not currency manipulators,” Trump told the Journal about China. The statement was an about-face from Trump’s election campaign promises to slap that label on Beijing on the first day of his administration as part of his plan to reduce Chinese imports into the United States.

The Journal paraphrased Trump as saying that he’d changed his mind on the currency issue because China has not been manipulating its yuan for months and because taking the step now could jeopardize his talks with Beijing on confronting the threat from North Korea.

Separately Wednesday, at a joint news conference with NATO Secretary General Jens Stoltenberg, Trump said the United States was prepared to tackle the crisis surrounding North Korea without China if necessary.

The United States last branded China a currency manipulator in 1994. Under U.S. law, labeling a country as a currency manipulator can trigger an investigation and negotiations on tariffs and trade.

Senate Democratic leader Chuck Schumer said in a statement that Trump’s decision to break his campaign promise on China was “symptomatic of a lack of real, tough action on trade” against Beijing.

“The best way to get China to cooperate with North Korea is to be tough on them with trade, which is the number one thing China’s government cares about,” Schumer said.

Yellen’s future

Trump also told the Journal that he respected Federal Reserve Chair Janet Yellen and said she was “not toast” when her current term ends in 2018.

That was also a turnaround from his frequent criticism of Yellen during his campaign, when he said she was keeping interest rates too low.

At other times, however, Trump had said that low rates were good because higher rates would strengthen the dollar and hurt American exports and manufacturers.

“I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting — that will hurt ultimately,” Trump said Wednesday.

“It’s very, very hard to compete when you have a strong dollar and other countries are devaluing their currency,” Trump told the Journal.

The dollar fell broadly Trump’s comments on the strong dollar and on his preference for low interest rates. It fell more than 1.0 percent against the yen, sinking below 110 yen for the first time since mid-November.

“It’s hard to talk down your currency unless you’re going to talk down your interest rates, and so obviously he’s trying to get Janet Yellen to play ball with him,” said Robert Smith, president and chief investment officer at Sage Advisory Services in Texas.

Trump’s comments on the Fed were his most explicit about the U.S. central bank since he took office in January, and they suggested a lower likelihood that he plans to try to push monetary policy in some unorthodox new direction.

Fed overhaul

Some key Republicans have advocated an overhaul of how the Fed works, using a rules-based policy that would most likely mean higher interest rates, not the lower ones Trump said he prefers.

The Fed in mid-March hiked interest rates for the second time in three months, increasing its target overnight rate by a quarter of a percentage point.

“Maybe he’s learning on the job,” said Carl Tannenbaum, chief economist at Northern Trust in Chicago, noting that with Trump’s transition from candidate to president he was now being counseled by more orthodox voices sensitive to what is needed to keep global bond markets on an even keel.

The president is also “very close” to naming a vice chair for banking regulation and filling another open seat that governs community banking on the Federal Reserve Board, U.S. Treasury Secretary Steven Mnuchin said during the interview.
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