Trump's attacks on the Fed could backfire, says former official

Devin Lawrence
October 21, 2018

U.S. President Donald Trump's disdain for higher interest rates won't gain any sympathy from the Federal Reserve as the minutes from their Federal Open Market Committee session from September 25-26 were released today, which showed Fed members indicating that more rate hikes are likely to come.

Trump has broken with standard presidential practice by openly commenting on rate hikes, most recently on Tuesday, when he told Fox Business News: "My biggest threat is the Fed".

"Given that the economy has performed fundamentally as I expected at the outset of this year", said Quarles, "the right strategy is to maintain the gradual course that I have thought appropriate for some time now".

Trump heaped more criticism on the Fed, calling it "my biggest threat" in an interview with Fox Business Network on Tuesday. Critics have expressed concern that the president's continued attacks on the Fed threaten its ability to operate free of political pressure.

"The Fed is raising rates too fast and it's independent so I don't speak to [him]", Trump said, referring to Federal Reserve Chair Jerome Powell.

Those remarks came in a week when the stock market, which Trump has often cited as a barometer for his stewardship of the economy, was plunging.

Under Powell, the Fed has been gradually raising rates as the economy has strengthened as a way to prevent a run-up in inflation.

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Policymakers expect to raise rates again in December, and several times next year before the fed funds rate tops out at 3.40 percent in 2020, a level officials characterize as at least mildly restrictive, according to the most recent set of Fed economic projections.

The Dow Jones Industrial Average fell 327.23 points, or 1.27 percent, to 25,379.45, the S&P 500 lost 40.43 points, or 1.44 percent, to 2,768.78 and the Nasdaq Composite dropped 157.56 points, or 2.06 percent, to 7,485.14.

Over the past few decades, presidents have typically refrained from commenting on the Fed's interest rate policy, since the central bank is independent and presidential pressure on the Fed typically ends in disaster. She also said the central bank should be raising rates to a level that neither stokes nor constrains the economy.

In February, Trump tapped Powell, then a member of the Fed's board, to become chairman after he had decided not to offer Yellen a second four-year term. But as with many other aspects of the office, Trump has broken tradition.

But Bullard has taken a different tack, arguing that the Fed rate hikes of the past roughly two years have only been possible because the economy outperformed the central bank's outlook.

"There are a lot of other people there I'm not so happy with", he said.

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