Monday, 20 August, 2018

Markets fall after Trump criticises Fed rate hikes

Trump MAGA hat Jae C. Hong AP Images
Nellie Chapman | 20 July, 2018, 22:25

President Donald Trump criticized the Federal Reserve's interest-rate increases, breaking with more than two decades of White House tradition of avoiding comments on monetary policy out of respect for the independence of the USA central bank.

After criticising the Federal Reserve for raising the cost of borrowing, he went on to say: "The United States should not be penalized because we are doing so well".

Later, in a statement, the White House said Trump respects the Fed's independence and is not interfering with its policy decisions.

In excerpts of an interview with USA television network CNBC aired Thursday, Trump said a strong dollar "puts us at a disadvantage", adding that the Chinese yuan "has been dropping like a rock". In his remarks to CNBC, Trump called Powell "a very good man". China imports only $129.9 billion of USA goods, which leaves it little room for a tit-for-tat response.

The US imported $505 billion worth of goods from China in 2017, according to Census Bureau data.

Ex-Dallas Fed President Richard Fisher told CNBC that Trump was off course in his criticism of the Fed, which is headed by Trump appointee Jerome Powell.

The rate rises, which make borrowing more expensive, are meant to head off uncontrolled price rises as the U.S. economy expands.

There's a risk the dollar "de-couples from interest-rate differentials as investors come to terms with the White House's mercantilist US -dollar policy", Patel.

"I'm not happy about it".

That phenomenon is being magnified by Trump's trade rhetoric, since fear of a global trade war has investors flocking for the historical perceived safety of the US dollar.

The comment breaks with a long-standing tradition of USA presidents not commenting on central-bank policy.

"I'm not doing this for politics - I'm doing this to do the right thing for our country", he added.

'I don't like all of this work that we're putting into the economy and then I see rates going up'. Both Bush administrations, and the Clinton administration that came between them, squabbled with chair Alan Greenspan, who's time atop the Fed saw the central bank make a long series of aggressive hikes and cuts between 1987 and 2006, when he was replaced by Ben Bernanke.

Around $505 billion of Chinese goods came into the United States in 2017, leading to a trade deficit of almost $376 billion, U.S. government data shows.

While not only stirring debate, the comments also had an immediate effect on markets with the dollar basket erasing a rally posted earlier in the day. "But at the same time I'm letting them do what they feel is best", he said.

Mr Trump has said before that he favours low interest rates, and dismissed concerns about his interference.

Senior EU officials, including the European Commission's president, Jean-Claude Juncker, are set to fly to Washington, DC, next week with the aim of persuading Trump not to levy punitive tariffs on European automobiles.