As Trump goes low, Fed goes high

Ann Santiago
August 27, 2018

Most market watchers expect the central bank to lift rates two more times in 2018.

St. Louis Federal Reserve Bank President James Bullard on Friday raised new alarm bells over the US central bank's plan to keep raising interest rates, warning that even one more rate hike could set the stage for recession.

What's more, the RSI is trending north and could find acceptance above 50.00 (in bullish territory) on Monday. "I believe in the Fed doing what's good for the country", Trump said in an interview with Reuters. Still, central bankers have shown patience, raising rates at a careful pace while inflation has slowly moved higher.

While it might seem odd that there is debate over whether a 2 percent interest rate is too high, it should be remembered that the key rate spent years at zero percent following the financial crisis.

The Fed has penciled in two more interest rate hikes this year despite risks from trade conflicts and emerging market turmoil.

Wall Street tends to obsess over whether the Federal Reserve will raise interest rates, but most consumers pay little attention.

He said prices were rising at about the Fed's target pace of two percent, signaling the U.S. central bank does not expect to accelerate interest rate increases as some investors have feared.

The Nasdaq rose 0.9 per cent to 7,945.98, also a fresh record, while the Dow Jones Industrial Average gained 0.5 per cent to 25,790.35, about 825 points below its all-time high.

The U.S. Dollar spiked lower on the news with the headlines reading that Trump's comments triggered the break.

"I will explain today why the committee's consensus view is that this gradual process of normalization remains appropriate", Powell said of the rate-setting Federal Open Market Committee.

Though Powell chose not to mention Trump's criticism, other Fed officials asserted that the president's complaints about rate hikes would have no effect on their policymaking.

"Treasuries have returned to the lower end of their recent (yield) ranges and I think that speaks to the heavy short positioning, suggesting that it's easier for the market to rally than it is to sell off", said Jonathan Cohn, an interest rate strategist at Credit Suisse in NY.

Asked about the significance of this development, James Bullard, president of the Fed's St. Louis regional bank, says Fed officials had been wrong to dismiss recession warnings from inverted yield curves in 2000 and 2006.

The Fed's policy rate stands in a range of 1.75 percent to 2 percent. But Powell noted that there's a wide difference of opinion about it.

In June, the Fed predicted a total of four hikes this year, up from an earlier estimate of three. Five of those rate hikes, including two this year, have occurred with Trump in the White House.

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