Trump calls Fed's expected rate hike 'foolish' and 'incredible'

Marcus Newton
December 19, 2018

Those investors have a cheerleader in President Donald Trump, who slammed the Fed again in a tweet Monday for "even considering" another rate increase, laying out arguments against a hike to savor the achievement of a strong USA economy.

Charles Schwab Chief Investment Strategist Liz Ann Sonders on the outlook for Federal Reserve policy, the USA economy and the state of the markets.

And with global economy also weakening, there is a growing feeling the central bank will not have to raise rates as much as previously expected next year. The Fed had predicted three more rate hikes next year, but many economists now think that is too many, especially with many experts predicting the US economy will start slowing next year and could end up in a recession by 2020. Their recommendation: cancel the December rate hike, as others have suggested.

Policymakers at the US Federal Reserve are expected to raise interest rates this week. The two warned that in conjunction with raising rates, the Fed's balance sheet unwind creates a "double-barreled blitz" of policy impediments that could threaten a US economy still capable of growth.

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. But this week, in the view of many analysts, the central bank could indicate that no more than two rate hikes are likely next year. In addition, interest-rate sensitive sectors of the USA economy such as housing and autos are under more pressure.

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So far, Powell has taken care to express concern about rising tariffs while noting that they might ultimately prove beneficial if they force China and other nations to lower their trade barriers and thereby promote freer trade.

Trump fired off two such tweets this week in the run-up to the Fed meeting. But while economists don't like Trump's Fed bashing, there are some who are starting to agree with the president that it's time for the Fed to hit pause on the rate hikes.

On Tuesday, he urged the Fed to consider a Wall Street Journal editorial that argued for a "prudent pause" in rate hikes. Such a drop would send 10-year Treasury yields tumbling below 2.75 percent, she said.

But perhaps the real credit should go to America's central bank and the policy actions it took to support the economy when it was extremely fragile.

In a November speech, Fed Chairman Jerome Powell signaled fresh flexibility in how the Fed sets interest rates but didn't say policy makers' economic outlook had changed.

Other reports by MaliBehiribAe

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