Trump again warns the Federal Reserve not to raise rates

Dec 19, 2018, 02:06
Trump again warns the Federal Reserve not to raise rates

"Take the Victory!" Trump wrote Monday in a Twitter post.

The rate hike decision is widely expected, as the country's jobless rate has fallen to 3.7 percent, the lowest level in decades.

Futures markets now put the odds of a rate hike this week at about 80 percent. A slowing economy - or a recession - could damage Trump's re-election efforts in 2020.

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Since then, though, a weakening in global growth has become more pronounced, posing a risk to the USA economy. The Dow Jones Industrial Average of stocks fell more than 500 points on Monday and is down 12 per cent since early October. "I think what the Fed should do, is simply do what it says it's going to do, which is look at the data. rather than just saying you're going to raise rates three times in the next year - that was insane.

We believe the USA economy can sustain strong performance next year, but it can ill afford a major policy error, either from the Fed or the rest of the administration", Druckenmiller said in a December 17 op-ed published by The Wall Street Journal. Neither, most likely, is the Fed itself.

Nearly all economists expect the Fed to raise rates again at its meeting this week, while many also see the central bank making increases next year, although at a slower pace in the face of a possible economic recession.

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"Our gradual pace of raising interest rates has been an exercise in balancing risks". Among the factors depressing the market are the Fed's rates hikes.

The markets are pricing in a 78.4% chance of a rate hike announcement on Wednesday, according to CME futures data, when the Fed wraps up its last two day meeting of the year.

The Fed began gradually shrinking its balance sheet in 2017 after inflating it to more than US$4 trillion by buying bonds to fight the financial crisis and revive the economy.

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The piece, titled "Time for a Fed Pause" suggests that Fed Reserve Chairman Jerome Powell should "ignore the politics, inside and outside the Fed, and follow the signals that suggest a prudent pause in raising rates". In addition, interest-rate sensitive sectors of the USA economy such as housing and autos are under more pressure. And last week Trump told Reuters that Powell is a "good man" who is "trying to do what he thinks is best", one of the more complimentary statements he's made about the Fed chair in months. That doesn't go to say the Fed won't revise down its rate projections - it very well might, as all it would take for the "median" projection to be lowered to signal two hikes in 2019 is just one official marking their forecast down.