Trump slams Federal Reserve on the eve of interest rate decision

As fourth hike this year looks likely, Trump ‘sets up Fed to take blame’ for economic slip

Trump’s tweets about monetary policy have intensified as US stocks tumble amid signs the world’s largest economy may be moderating. Photograph: Doug Mills/The New York Times

Trump’s tweets about monetary policy have intensified as US stocks tumble amid signs the world’s largest economy may be moderating. Photograph: Doug Mills/The New York Times

 

President Donald Trump slammed the Federal Reserve on the eve of a pivotal policy meeting for “even considering” another interest-rate increase, and suggested the central bank has no reason to move because inflation is low and the US currency is strong.

“It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike,” Trump said in a tweet on Monday. “Take the Victory!”

The Federal Open Market Committee begins a two-day meeting in Washington on Tuesday, and trading in federal funds futures indicates a greater than 70 per cent chance of the panel’s fourth rate hike this year.

Trump’s tweets about monetary policy have intensified as US stocks tumble amid signs the world’s largest economy may be moderating. Fresh evidence of that came out just minutes after his latest salvo. The New York Fed’s Empire State manufacturing index tumbled this month to a 19-month low.

For months Trump has accused the central bank of undermining the economy’s growth by hiking interest rates. US presidents have typically refrained from encroaching on the independence of the Fed.

Blaming Fed

“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 New York and a former Fed staff economist. “The president stakes so much of his claim to achievement on the stock market and economic performance. He’s worried about whether that will falter, so he’s setting up the Fed to take the blame.’’

After the Fed’s December meeting, expectations of further hikes shrink, with investors betting on only one more move. The consensus among economists is for two 2019 hikes. That is partly due to Fed officials signalling in recent speeches that their tightening campaign has succeeded in raising borrowing costs near to territory that they consider neutral in terms of speeding up or slowing the economy.

Fed officials have also noted they are paying attention to risks such as slowing growth in Europe and in interest-sensitive sectors of the US economy. Financial conditions have also tightened, partly because of stock-market losses on the White House’s harsh rhetoric on trade and fears that uncertainty over Trump’s policies could hit long-run investment spending. – Bloomberg