Is Trump Right About The Federal Reserve?

Sean Reid
October 28, 2018

"To me the Fed is the biggest risk, because I think interest rates are being raised too quickly", Mr Trump said. The interest rate was lowered by the bank to cope up with the recession of 2008.

Trump says the Fed is raising rates too fast, blunting the economic stimulus from tax cuts and deregulation, and making life harder for his administration as the tariffs resulting from the U.S. trade war with China and other countries begin to bite. Trump also seemed irritated that during former President Obama's tenure in the White House, interest rates hovered near zero.

When asked whether he regrets nominating Powell to chair the Federal Reserve, Trump said it's "too early to say, but maybe".

"I'm not happy about that", he said at a press conference in NY.

The fed funds rate target is now 1.75 percent to 2 percent, and that is the rate closely tied to consumer debt, particularly credit cards, home equity lines and other adjustable-rate loans.

Stocks jumped, bond yields fell and the dollar slid after on Friday that the central bank sees no reason to speed up interest rate hikes.

United States firms nationwide complain trade disputes with China and others are boosting the prices of key inputs, while they continue to face widespread labor shortages, the Federal Reserve said Wednesday.

"Every time we do something great, he raises the interest rates", Trump said, adding that Mr. Powell "almost looks like he's happy raising interest rates".

The Fed in recent years has kept rates low in part to guard against a drop in inflation that could prove damaging to future economic growth.

And, even if subtly, the Fed is taking its own pots shots at Trump, noting that the general confidence in growth prospects also faces a few potential obstacles one fiscal policy stimulus starts to wear off.

As with other personnel changes, the president made his Fed pick something of a reality show, asking Fox anchor Lou Dobbs for his recommendation in a televised interview. Hence, higher rates mean higher cost of borrowing for consumers and corporations, which, in turn, lead to lower profits and a weaker economy.

"U.S. monetary policy remains accommodative", Clarida said in remarks at the Peterson Institute for International Economics.

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". George HW Bush blamed his 1992 election defeat on then-Fed Chairman Alan Greenspan, and Lyndon B. Johnson clashed with Fed chief William McChesney Martin over raising rates in 1965. The rate hikes are also created to give it room to provide support for the economy whenever the next downturn arrives. He can't remove Fed governors, including Powell, except for ill-defined "cause", and the Senate must confirm replacements.

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