Trump can rail against Powell, but he can't fire him

01 December, 2018, 01:35 | Author: Elaine Woods
  • Federal Reserve Chairman Jerome Powell speaks to the Economic Club of New York saying that interest rates remained

Although a December rate hike has been widely expected, the Fed's path next year has been more uncertain, with investors last month expecting two or even three rate hikes in 2019.

The minutes showed nearly all Fed members agreeing that another rate increase was "likely to be warranted fairly soon", but also ticked off a series of issues that had begun weighing on their view of the economy.

His comments contrast with views he expressed in October when Powell said the Fed was "a long way off" neutral.

The central bank expects the unemployment rate to remain historically low next year. His remark then had unsettled investors who feared it signaled that the Fed would continue raising rates well into the coming months.

He also said the central bank does not see "dangerous excesses" in stock markets and the financial system now is "substantially more resilient" than it was before the 2008 financial crisis.

In recent weeks, U.S. President Donald Trump has repeatedly attacked the Fed - and Powell personally - for their rate increases, which the president has blamed for any economic weaknesses or stock market turmoil. This gap, which measures expectations on rate increases in the next year, has narrowed to 23 basis points, indicating that traders are not penciling in more than one increase in 2019, although the Fed's median projections still point to three increases next year.

"It's important to distinguish between financial market volatility and events that threaten financial stability", he said.

US President Donald Trump has repeatedly attacked Powell for raising the benchmark lending rate but the Fed chief and other officials say the attacks have no influence on the deliberations of the independent central bank (AFP
Dollar weakens as cautious Fed leads to rate-hike rethink

He said that while there was "a great deal to like" about United States prospects, the Fed's gradual interest-rate hikes are meant to balance risks as it tries to keep the economy on track. But after that, officials said further hikes would not be on a preset course.

Jerome Powell, the man President Donald Trump chose previous year to lead the Federal Reserve, may at times think he's living through a prolonged episode of the "The Apprentice", the reality TV show in which Trump was famous for declaring, "You're fired!"

Feldstein says the Fed should keep raising rates to protect the US economy from a potential downfall.

Speaking to the Economic Club of New York Powell said interest rates were now "just below" the range Fed officials consider neutral, a setting created to neither speed nor slow growth. The courts ruled decades ago that "for cause" meant more than a policy disagreement with the president.

The Fed takes equally seriously the risks of hiking too quickly and shortening the economic expansion, and on the other hand of hiking too slowly and prompting higher inflation or financial instability, Powell said.

In an interview with The Washington Post, Trump said the Fed was "way off base".

Some market analysts treated such remarks as an indication of a possible pause in rate hikes, since the neutral rate could be used to decide a target area for the central bank to complete its normalization cycle. The general consensus is that a rate hike in December will most certainly occur as the CME Group's FedWatch Tool, an algorithm that calculates the probability of a rate hike in a given month, is now showing an 82.7% chance the Federal Reserve will institute a fourth rate hike to end 2018. But some economists say three rate increases for next year are beginning to look less certain. "But I think they are overpriced", he said.

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