Is Trump Right About The Federal Reserve?

Is Trump Right About The Federal Reserve?

Is Trump Right About The Federal Reserve?

Though critics have blamed Trump's comments for the sharp fall in United States stock markets, White House officials have dismissed them as a natural correction after long run of rising share prices.

In an interview earlier this month, Trump told FOX Business' Trish Regan that he saw the Fed as the biggest threat to his presidency.

It may not be Trump's first public attack on the central bank, but it is the most vicious to date, and many will note that the American president is starting to sound a lot like Turkey's unhinged Erdogan, who believes that interest rates are the work of the devil.

The US economy is in good shape to keep expanding, but more interest rate increases will be needed to maintain that trajectory without inflation, newly-installed Federal Reserve Vice Chairman Richard Clarida said on Thursday (Oct 25).

The U.S. president said Powell "almost looks like he's happy raising interest rates", but declined to elaborate. As it stands, the Fed expects to hike again in December, and three more times next year.

George Washington University political scientist Sarah Binder, who published a book on the Fed's relations with elected officials, said that while Trump's tweets and media outbursts gain much attention, they fall short of the in-person demands presidents in the 1960s and 1970s made of Fed chiefs.

"I don't know", he said.

"It's a Fed inversion", said Ian Lyngen, head of USA rate strategy at BMO. But whether the stock market weakness is a result of interest rates, the trade war or something else is nearly impossible to determine. "By law he can only fire governors "for cause" and raising interest rates can hardly be considered a cause - whether Congress would stop him perhaps depends on whether Democrats manage to take the house [in the midterm elections]", says Elsa Lignos, head of FX strategy at RBC Capital Markets.

In addition, investors and economists view lower interest rates as catalysts for growth. But the bank is clearly getting this effect by increasing the borrowing rates.

Stocks jumped on October 25, recovering from prior days' rout. "They have a right to act the way they do", Hatch said.

Continued volatility in asset prices including stock prices are indicators of financial conditions, he added.

That will serve as "a tailwind for the economy, not a headwind", in conjunction with lower taxes, he said.

Despite the unemployment rate at a record low and rising wages, he admitted that the inflationary pressures aren't that strong.

"If strong growth and robust employment gains were to continue into 2019 and be accompanied by a material rise in actual and expected inflation", he said, "that circumstance would indicate to me that additional policy normalization might well be required beyond what I now expect".

He warned, however, that monetary policy operates with a lag, and with inflation presently near the 2 percent goal, it would be important to monitor inflation projections closely, he said.

Is there any evidence the Fed is impeding the economy?

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