Published: Sat, October 27, 2018
Money | By Wilma Wheeler

Is Trump Right About The Federal Reserve?

Is Trump Right About The Federal Reserve?

Trump told the Wall Street Journal in an interview Tuesday that he was intentionally sending a direct message to Powell that he wanted lower interest rates, even as he acknowledged that the central bank is an independent entity.

U.S. president Donald Trump targeted federal chairman Jerome Powell in his latest tirade against Federal Reserve stating that the organization is the biggest threat to American economy as it is only concerned about raising interest rates that adversely affects borrowing power.

"President Donald Trump's recent public criticism of Fed Chair Jerome Powell is a clever attempt to pre-emptively blame the Fed and its interest rate hikes for any future downturn in the USA economy".

Trump also said it was "too early to say" whether he regretted nominating Mr Powell but "maybe".

The Fed held interest rates at ultralow levels for years in response to the 2007-09 financial crisis amid anemic growth both in the USA and overseas, and began slowly lifting rates in December 2015.

And everyone will note the unsafe similarity to Turkey, where President Erdogan has repeatedly referred to interest rate his as the work of the devil, resisting them entirely until very recently and even appointing his son-in-law to head the ministry of finance to give him control over the central bank.

"I believe monetary policy today remains accommodative, and that, with the economy now operating at or close to mandate-consistent levels for inflation and unemployment, the risks that monetary policy must balance are now more symmetric and less skewed to the downside", he said.

Presidents have for decades refrained from commenting on the Fed, a stance adopted to avoid compromising its independence - and its credibility with financial markets. Mike Crapo, R-Idaho, declined to comment about whether he's pleased with Powell. "I'm not happy with what he's doing because it's going too fast", Trump said.

The president may be trying to cast the Fed as a scapegoat with just two weeks to go before elections that will determine whether Republicans maintain control of Congress.

"I think the fed is making a mistake, they're so tight", he stated.

U.S. presidents usually remain silent on such issues in respect toward the Fed's independence.

Combined those factors would allow the Fed to keep interest rates lower than otherwise without risk of inflation, key indicators of which "are not flashing red right now". If doubts were to emerge in markets about the central bank's credibility, then investors could push up borrowing costs, ultimately slowing the economy and hurting stocks, thus meaning Trump's lobbying had backfired.

It is unclear whether the president would have the authority to remove Powell.

He pointed out how the central bank kept interest rates at zero during the last administration, but they have raised the rate three times this year alone.

On Sept. 26, the Fed raised the target range for the federal funds rate to 2-2.25 percent.

Like this: