Sunday, 16 December, 2018

Fed plans to keep hiking interest rates despite Trump blowback

Trump slams ‘too independent’ Fed as his ‘biggest threat Reuters Carlos Barria
Kelvin Reese | 20 October, 2018, 03:50

However, a couple of Fed officials indicated that they would not favor adopting a restrictive policy stance "in the absence of clear signs of an overheating economy and rising inflation".

The Federal Reserve's most recent interest rate increase put monetary policy about where it should be, with no further hikes required in an economy where inflation remains weak, St. Louis Fed President James Bullard said on Thursday, pressing an argument he has made over the past two years.

He added: "It's independent, so I don't speak to [Federal Reserve Chair Jerome Powell] but I'm not happy with what he's doing". Powell, appointed to the Fed in 2012, was already a member of central bank when Trump nominated him to be chairman.Powell, Quarles and Clarida are all moderate Republicans with similar views on monetary policy and financial regulation.

Though the minutes did not refer to any of Trump's criticism, its message of further rate increases suggests that policymakers are not fazed by it.

The US economy has been growing more quickly this year than many economists believe is possible without generating higher inflation, with the jobless rate at its lowest level in decades.

The former Fed chair's comments add to a chorus of voices who say it's unusual and even perhaps risky for a president to openly criticize central bank policy, which is charged by Congress with focusing on delivering maximum sustainable employment and stable prices.

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The firming in equities and the dollar has led to the market discounting U.S. President Donald Trump's latest criticism of the Fed, which should have otherwise been supportive of gold, a Singapore-based trader said.

Trump's concern is that a steady march of rate hikes will serve to the slow economy down just as the administration is nearing its goal of 3% economic growth this year. It is literally disregarding the president's taunts, which is precisely what it is meant to do as an unconventional central bank. "There's no law against that, but I don't think it's wise". He has said the economy is strong and can afford to pay higher interest.

Quarles also suggested that the Fed should pay attention to other indicators that reflect tightness and overheating in the US economy. The unemployment rate now stands at a very low 3.7% and is well under most estimates of full employment, which indicates that the labor market has the prospect to drive up inflation at some point.

Companies facing higher materials costs told the Fed they had an 'increased ability to raise the prices of their products, ' according to the minutes. "My biggest threat is the Fed", he said.

Meanwhile, the S&P 500 Futures traded 0.33 percent lower at 2,807.00 by 10:40GMT, while at 10:00GMT, the FxWirePro's Hourly Dollar Strength Index remained neutral at -3.86 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend).

Bullard is not now on the Fed's rate-setting committee but will join it in 2019.

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