Trump Says Fed's Powell 'let us Down' on Interest Rate Decision

Trump Says Fed's Powell 'let us Down' on Interest Rate Decision

Voting for the 25-bps rate cut today were Fed Chair Powell, Fed Vice Chair Williams, and board members Bowman, Brainard, Bullard, Clarida, Evans, and Quarles. Cutting rates even while job growth and the broader economy remain solid - rather than waiting for inflation to spike on its own (or even raising interest rates in anticipation of inflation), as the Fed has been doing slowly for the past two and a half years - would be a big break from past policy.

The central bank reduced its benchmark rate - which affects many loans for households and businesses - by a quarter point to a range of 2 per cent to 2.25 per cent. Sustained expansion of economic activity and a strong labor market are also the most likely outcomes, the Fed said.

We appreciate the philosophy espoused by Dallas Fed President Robert Kaplan, that strong economic growth can overcome a multitude of social ills, as entrepreneurs invest and hire more people, eventually hiking wages to attract the best workers.

In addition to Wednesday's cut, the Fed also said it's halting its balance sheet reduction - two months earlier than planned. Officials believe that earlier and more aggressive action is needed to ensure that the US doesn't end up like Japan, with interest rates stuck at zero. The PBOC hasn't mirrored a Fed move since early 2018, when the growth trajectory of the world's two largest economies started to diverge.

Powell and other Fed officials in recent weeks have walked a middle ground, flagging risks like continued uncertainty on the global trade front, low inflation and a weakening world economy, but repeating the view the United States is fundamentally in a good spot. The last increase came in December, to put rates at the current 2.25-2.5 percent range.

For one thing, some borrowing costs are already low and markets have already priced in expectations the Fed would support the economy.

Lackluster inflation also offered the Fed space and reason to ease. "The outlook for the US economy remains favorable and this action is created to support that outlook".

This was the first rate cut since December 2008 when, during the depths of the great recession, the Reserve slashed its rate to a record low near zero and kept it there until 2015.

A key concern expressed by the Powell Fed is that Trump's pursuit of trade conflicts, with his punishing tariffs on hundreds of billions of dollars in Chinese and European goods, have escalated uncertainties for American companies.

The Fed's action Wednesday was approved 8-2 vote, with two dissents: Esther George, president of the Fed's Kansas City regional bank, and Eric Rosengren, head of the Boston Fed, wanted to keep rates unchanged. If the Fed cuts, you can expect that to go lower. Trump has blamed the Fed's four rate hikes in 2018 as a key reason why the US economy is slowing.

Trump has relentlessly attacked the politically-independent central bank for raising rates in 2018, with his frustration reaching a point where he began asking aides about his ability to oust the Fed chief in discussions reported by Bloomberg News on December 21.

U.S. President Donald Trump, who has repeatedly attacked the Fed's policy stance under Powell and demanded that it push through big rate cuts, said on Twitter the Fed chief "let us down" by not telegraphing that an aggressive easing was coming. "We'll also, of course, be watching the performance of the USA economy.We'll be putting all of those together, and that's how we'll be thinking of policy going forward".

With everyone unsatisfied, the question is what happens next: Was this a "one and done" insurance-like rate cut, or a more dovish decision that's just the beginning?

The Fed's move brings its rate to within 50 points of the Bank of Canada's rate, which is now set at 1.75 per cent. Those uncertainties include Brexit, the U.S. This policy shift is gasoline for bitcoin.

Related Articles