Published: Sat, October 27, 2018
Business | By Eloise Houston

Federal Reserve: Trump sharpens attack on central bank

Federal Reserve: Trump sharpens attack on central bank

Trump said in the interview that Powell "almost looks like he's happy raising interest rates" and that is "too early to tell, but maybe" he regrets appointing him. But the courts ruled in a case decades ago involving the Federal Trade Commission that this language has to involve more than a policy disagreement between the president and the Fed.

After years in which the central bank held rates very low to boost economic growth and hiring, the Fed's current policy stance was providing support to an economy that no longer needed it, Mr. Clarida said in a speech at the Peterson Institute for International Economics. The combination of higher interest rates and slowing growth is positive for the dollar. He feels there is insufficient evidence that inflation will return, and rate hikes are unnecessary at this stage.

The Fed has raised the key interest rate three times this year and is widely expected to increase by another 0.25 percentage points in December.

So far, Trump's verbal salvoes have had no discernible impact on the Fed, which has been sticking to its plan of gradually lifting borrowing costs to levels it considers more appropriate for a healthy, growing economy.

Trump argues the boom he says is generated by his economic policies are in danger from rising interest rates, but Clarida is unabashedly upbeat about the outlook. He said that while Fed watchers tend to focus on monetary policy, "what we have learned in the last 30 years is how important a strong regulatory system is.... They're going to keep keep raising rates", said John Briggs, head of strategy at NatWest Markets.

Continued volatility in asset prices including stock prices are indicators of financial conditions, he added.

In his first public appearance since taking the post, Clarida said that even after three rate hikes this year, the Fed's benchmark lending rate continues to provide stimulus to the economy that will need to be scaled back.

"A pickup in trend productivity growth is a possibility that deserves close monitoring", Clarida said.

Wednesday was not the first time the US president has hit out at the Federal Reserve and its monetary policy since the appointment of Jerome Powell to the helm back February. "By law he can only fire governors "for cause" and raising interest rates can hardly be considered a cause - whether Congress would stop him perhaps depends on whether Democrats manage to take the house [in the midterm elections]", says Elsa Lignos, head of FX strategy at RBC Capital Markets.

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