Trump says Federal Reserve ‘has gone crazy’ after big stock drop
12 October, 2018, 07:23 | Author: Eric Barnett
Mr Trump is correct in saying that rising interest rates tend to strengthen the U.S. dollar, as investors return funds to the United States in search of higher returns and safer investments.
The comments followed his strongest criticism of the Fed late Wednesday when he said the central bank had "gone insane".
White House economic adviser Larry Kudlow on Thursday said Trump's opinions had no weight on the Fed's actions. Three have PhDs in economics and three have law degrees.
"I really disagree with what the Fed is doing", Trump said. "I would not associate Jay Powell with craziness", she said.
That has so far been strong enough to warrant steady rate hikes, a sign from the Fed's perspective of an economy that has recovered more completely from the 2007 to 2009 financial crisis.
"The tax cuts juiced earnings this year and that's not sustainable, " he said.
The benchmark Nikkei 225 dropped almost two percent at the open and extended losses to below the three-percent mark, as traders fretted about surging interest rates and an ongoing trade spat.
The policy could eventually bite harder into parts of the economy that are both sensitive to interest rates and connected to politically important industries, such as autos and home construction and sales. It is often tied to higher costs of borrowing for the federal government, which can spook investors. "The Fed is going wild".
"We're quite removed from the political process", Powell said in an interview last week at the Atlantic Festival in Washington.
"And we just try to do the right thing for the medium and longer term for the country", said Mr Powell. "We don't let other things distract us". The Fed's main interest rate, the federal funds rate, now stands between 2 and 2.25 per cent.
A stock sell-off, rising trade tension with China, slower global growth and verbal pressure from the White House are unlikely to dent the U.S. Federal Reserve's rate hike plans in an economy performing in line with the central bank's forecasts. It is also expected to raise rates again by the end of the year. "That doesn't seem especially surprising". He was persuaded by Treasury Secretary Steven Mnuchin that Powell, who was already a Fed governor, would be a force for stability.
"I'm paying interest at a high rate because of our Fed", he added, referring to the cost of servicing the United States deficit.
On Thursday, the president launched into a third day of verbal abuse of the central bank.
"It's a correction that I think is caused by the Fed and interest rates", Trump told reporters.
"We have interest rates going up at a clip that's much faster than certainly a lot of people, including myself, would have anticipated". "Where is the inflation that they are fighting?"
The attacks on the Fed are another example of Trump breaking with recent norms.
But for all the stock market palpitations and risks to particular interest-rate sensitive industries, the message to take from the recent rise in interest rates is an unambiguously good one: This expansion may have some life in it yet.
But Trump loves to tout good economic news, and either dismisses bad economic news or blames it on the Fed.
Powell's goal is to extend the second-longest USA economic expansion on record by moving interest rates up just quickly enough to prevent overheating, but not so rapidly that the central bank chokes off growth.
"I wonder today whether Trump really has some buyer's remorse with respect to selecting Powell as his Fed chairman, because that was a odd pick", Moore said.
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