The Fed is trapped in the Twilight Zone

[Bloomberg]( Today’s Agenda - Some Fed problems [can’t be solved]( with buckets of money. - Nobody wins in [Trump’s assault on California](’s environmental rules. - Trump [can’t declare war on Iran]( without Congress’s OK. - Pot investors [should take a chill pill](. Fed Problems The U.S. Federal Reserve is one of those rare, lucky entities that can occasionally solve problems just by shooting money at them. Too bad its biggest problems resist such treatment. The central bank today doused a fire that had been raging in the overnight repo market, simply by pumping $75 billion at it today, $75 billion yesterday and $53 billion the day before that, with a promise of more money tomorrow. Must be nice! Financial markets mostly [returned]( to normal functioning, though there could be small flare-ups easily handled by the administration of more buckets of money. That’s all good news for the economy. Weirdly, however, the best-known thing the Fed does for the economy – raising and lowering interest rates – is not as helpful. That’s because the economy’s biggest risk currently is the trade war being waged by that armchair Fed [quarterback](, President Donald Trump. The Fed yesterday cut interest rates by a quarter of a percentage point, but that pleased neither Trump nor traders, which Robert Burgess notes are teaching the central bank [a harsh lesson in the law of diminishing returns](. The trouble is, markets have priced in [many more cuts than the Fed expects](, along with a recession, notes John Authers. Markets usually win these fights. Tim Duy suggests the [economic numbers lately have been strong enough]( to argue against further rate cuts. But there’s still a risk of more damage from the trade war. So the Fed is [trapped in this twilight zone]( between cutting rates and standing pat, Bloomberg’s editorial board writes, while being uncertain rate cuts can even offset a trade war’s destruction anyway. It’s enough to make a central banker yearn for the simplicity of a repo-market meltdown. Further Central Bank Reading: Don’t tell Trump, but the [People’s Bank of China seems to have a much better handle]( on its overnight funding markets, which may help explain why it can take its time cutting rates. – Shuli Ren Climate Problems Most sentient humanoids are by now aware climate change is an existential threat to the species. But the sentient humanoids in charge continue to respond poorly. In the U.S., for example, Trump pretends it’s not a problem. This week he tried to strip California of its ability to set its own auto-emissions standards. This would lead to more pollution, including greenhouse gases, leading to more global warming, Bloomberg’s editorial board notes. It [wouldn’t even help the auto industry](, which has already invested in meeting California’s standards. Now it faces the prospect of years of uncertainty and legal fights. Indonesia, meanwhile, is currently celebrating the world’s worst late-summer tradition: the [setting of fires to massive swaths of land](, the smoke from which suffocates much of Southeast Asia and spews carbon into the atmosphere. Adam Minter writes Indonesia’s government isn’t doing nearly enough to stop it and suggests the European Union can use trade as a lever to force action. But Europe has its own struggles with climate policy. It at least acknowledges the problem’s existence, with incoming European Commission president Ursula von der Leyen setting an ambitious goal of a carbon-neutral continent by 2050. But [this target will be impossible to meet](, argues Leonid Bershidsky, given the need for the bloc’s poorer members to catch up to the rest economically. Even in the EU’s richest country, von der Leyen’s Germany, the volks have a healthy concern about global warming and a desire to do something about it. But Chris Bryant writes they also [love their cars, especially gas-chugging SUVs](, that make up such a key part of their economy and are so much fun to fahr’n fahr'n auf der [Autobahn](. Iran Problems Tensions between Iran, Saudi Arabia and the U.S. remained at a low boil today. Iran’s foreign minister warned of “[all-out war](” if the Saudis or Americans retaliate for weekend attacks on Saudi oil facilities. Trump seems in no rush to test that threat. Worryingly, though, his administration has claimed the authority to launch strikes if Trump decides to go that way. Ramesh Ponnuru counters that [no, in fact, Trump has no such authority](. Even if an attack were justified – and Ramesh argues it’s not – then only Congress could authorize it. You might think last week’s defenestration of former Trump national security adviser John Bolton, a known Iran hawk, would make war less likely. You might be wrong; Eli Lake points out Robert O’Brien, whom Trump named as Bolton’s replacement yesterday, is [just as hawkish as Bolton]( (to the extent it even [matters](). Telltale Charts Marijuana investors have been frustrated by the slow pace of growth lately, but Sarah Halzack reminds them [these are still very early days](. AT&T Inc. is right to ditch DirecTV, Tara Lachapelle writes, but may have to wait for the regulatory mood to be right before it can [sell to the most logical buyer](, Dish Network Corp. Forget WeWork, Uber and Lyft. The shiniest unicorn IPOs, Shira Ovide notes, are [boring little cloud-computing companies](. Further Reading A new scandal raises [questions about Deutsche Bank and its ECB]( regulators. – Elisa Martinuzzi and Marcus Ashworth The Philippines are [drifting toward China and away from the U.S.](, in what is probably a disturbing trend. – Hal Brands It’s still [too early for polls to tell us]( much about the Dem nomination race. – Jonathan Bernstein Pete Buttigieg’s health plan is different than rivals’ in one smart way: It [takes on hospitals and providers](. – Max Nisen Is [Econ 101 still relevant](? – Noah Smith and Michael Strain debate What the Jeffrey Epstein case [taught me about elite men](. – Tyler Cowen ICYMI Trump [denied saying “something inappropriate”](; Democrats remained unconvinced. [Vaping-sickness cases]( rose. Solar and wind power are [cheap enough]( to not need subsidies. Kickers [Four notes from a Gregorian chant]( keep showing up in movies. (h/t Scott Kominers) Who wants a [wearable chair](? (h/t James Greiff) Scientists find [freakish new sea creature]( under Antarctic ice, but it’s probably nothing to worry about. The traits of [high-earning kindergartners](. Note: Please send chairs and complaints to Mark Gongloff at mgongloff1@bloomberg.net. New to Bloomberg Opinion Today? [Sign up here]( and follow us on [Twitter]( and [Facebook](. [FOLLOW US [Facebook Share]]( [Twitter Share]( SEND TO A FRIEND [Share with a friend] You received this message because you are subscribed to Bloomberg's Bloomberg Opinion Today newsletter. [Unsubscribe]( | [Bloomberg.com]( | [Contact Us]( Bloomberg L.P. 731 Lexington, New York, NY, 10022