Trump warns Fed not to make 'mistake' ahead of likely rate hike

by Ben Pena December 19, 2018, 2:04
Trump warns Fed not to make 'mistake' ahead of likely rate hike

Those investors have a cheerleader in President Donald Trump, who slammed the Fed again in a tweet Monday for "even considering" another rate increase, laying out arguments against a hike to savor the achievement of a strong US economy.

In a tweet on Tuesday, Trump said that the Federal Reserve should "take the Victory" of a strong USA dollar while "the outside world is blowing up around us", instead of raising interest rates.

In addition, Trump's trade wars, signs China's economy is slowing and the impact of Brexit on an already sluggish European economy add to the sense of global uncertainty that has led stock markets in recent weeks to sell off, wiping out all their gains for the year. Markets seem positioned for a "dovish hike", where the Fed raises rates but lowers its rate-path forecasts and strikes a cautious tone. The Fed had predicted three more rate hikes next year, but many economists now think that is too many, especially with many experts predicting the USA economy will start slowing next year and could end up in a recession by 2020. Central bank policy makers have raised interest rates to keep the inflation rate in check and keep the economy from expanding too rapidly. Among the factors depressing the market are the Fed's rates hikes. Feel the market, don't just go by meaningless numbers.

Central bank policy makers, who operate independently of White House oversight, are meeting Tuesday and Wednesday in Washington and have hinted they could again boost the key rate by another quarter percentage point, with even higher rates a possibility but not a certainty in 2019.

"The criticism by the administration of the Fed is not going to stop, and it's likely to intensify", said Joshua Feinman, global chief economist at DWS in NY and a former Fed staff economist.

"The only argument I'm hearing for the Fed to raise rates now is somehow they have to exert their independence", he said.

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Fed Chairman Jerome Powell said in late November that interest rates were "just below" the broad range of estimates of the level that would be neutral for the economy.

Interest rates can act as a break on inflation.

The president has repeatedly exerted pressure on the Fed to hold off on rate hikes, saying the hikes will impede economic progress. As a result, like many economists, he predicts that the Fed will raise rates only twice next year.

The press conference with Mr Powell will be "particularly important", economists at Goldman Sachs said. But by design, the Fed's drawdown functions on "autopilot" and the Fed has said it would only resume asset purchases if there were a "sufficient" negative shock to the economy.

President Donald Trump fired the latest salvo on December 17 in his campaign to pressure Federal Reserve Chairman Jerome Powell to hold interest rates steady. That means the central bank can let up to US$30 billion in Treasury and US$20 billion in agency debt run off without reinvestment each month.

Trump fired off two such tweets this week in the run-up to the Fed meeting.

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