US Fed's vice chair backs further rate hikes

28 October, 2018, 07:42 | Author: Shannon Aguilar
  • Are Trump's attacks setting up the Fed to take the fall for a slowdown ahead of reelection bid

Federal Reserve Chairman Jerome Powell has come under increasing pressure from President Donald Trump over the central bank's gradual increase of interest rates. Before becoming the president he had complained that the bank is moving very slowly in increasing the interest rates.

Trump said in the interview that Powell "almost looks like he's happy raising interest rates" and that it's "too early to tell, but maybe" he regrets appointing him.

While the Fed continues to signal higher interest rates, President Trump remains critical.

Michelle Smith, a spokeswoman for the Fed, declined to comment on Trump's remarks Tuesday. "To me the Fed is the biggest risk, because I think interest rates are being raised too quickly", he told the Wall Street Journal.

The target range for the federal funds rate, now at 2 percent to 2.25 percent, is nevertheless still low by historical standards.

The Fed held interest rates at ultralow levels for years in response to the 2007-09 financial crisis amid anemic growth both in the USA and overseas, and began slowly lifting rates in December 2015.

New Federal Reserve vice chair Richard Clarida on Thursday said he'd support "some further" increase in interest rates as the best way to nurse the current US recovery along while guarding against any jump in inflation.

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"A business that's doing badly always likes to blame Trump and the tariffs because it's a good excuse for some incompetent guy that's making $25 million a year", Trump said.

What is Trump's criticism of the Fed? Trump lamented Powell "was supposed to be a low-interest-rate guy".

Combined those factors would allow the Fed to keep interest rates lower than otherwise without risk of inflation, key indicators of which "are not flashing red right now".

However, the Fed may still have a point.

"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". Hence, higher rates mean higher cost of borrowing for consumers and corporations, which, in turn, lead to lower profits and a weaker economy. "I think the fed has gone insane". The rate hikes are also created to give it room to provide support for the economy whenever the next downturn arrives.

Trump has nominated three other candidates to fill the remaining open spots on the Fed's board of governors.

Indirectly, the USA president can gradually change the composition of the policymaking board with successive appointments, picking candidates that favor lower rates and looser policy.

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