As reported by Bloomberg, US President Donald Trump’s comments on Wednesday about his dissatisfaction with the Fed’s current rate hike schedule could push the Fed to raise rates quicker in an effort to prove the central bank’s independence.
Key quotes
“President Donald Trump’s extraordinary broadside against the Federal Reserve on Thursday may end up getting him exactly what he doesn’t want: higher interest rates. Confronted with a burst of presidential pressure not seen for decades to keep monetary policy easy, Fed Chairman Jerome Powell and his colleagues on the Federal Open Market Committee may feel more inclined to demonstrate their political independence and hike rates when facing a close decision.
“The president’s comments may skew the committee in a hawkish direction,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., wrote in a note to clients following Trump’s criticism of the central bank in an interview on CNBC. “If a decision is a close call, then the appearance of kowtowing to the president may bias them toward raising rates.” Trump told CNBC that he was “not thrilled” with the Fed over rate hikes. “I don’t like all of this work that we’re putting into the economy and then I see rates going up.”
The Fed has raised rates five times since Trump took office in January 2017, and has penciled in two more hikes for this year. It’s also scaling back the support its providing the economy by gradually reducing its holdings of Treasury and mortgage-backed bonds.
There’s little evidence the Fed’s tightening is constricting the second-longest U.S. economic expansion on record: The unemployment rate under Trump has fallen to 4 percent, from 4.8 percent the month he was sworn in, and some economists predict gross domestic product last quarter expanded by more than 4 percent — about double the pace in the first three months of the year.”
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