Fed Reserve defends pace of interest rate rise amid Trump’s attacks

27 August, 2018, 01:35 | Author: Darnell Patrick
  • Fed chairman defends interest rate hikes as Trump’s attacks show no sign of working

The U.S. dollar weakened sharply, providing support for dollar-denominated gold prices, as Powell, at the annual Fed symposium said gradual U.S. interest-rate hikes remain appropriate and there was no risk to the economy overheating.

Strong Performance The Fed chairman said he expected the economy's "strong performance will continue" and as a result the Fed's "gradual process of normalization remains appropriate".

After having kept its key policy rate near zero for seven years to help lift the economy out of the Great Recession, the Fed has raised rates seven times, most recently in March and June this year.

Powell cited former Fed Chairman Alan Greenspan's decision to not raise rates during the mid-1990s as unemployment decreased and growth expanded, but inflation stayed largely steady.

"I see the current path of gradually raising interest rates as the (Federal Open Market Committee's) approach to taking seriously both of these risks", said Powell.

Although Trump appointed Powell, he criticised the Fed chairman for not doing enough to support trade negotiations around the world by setting monetary policy to support the United States economy.

Powell adds that while annual inflation has risen to near the Fed's 2 percent target rate, it doesn't seem likely to accelerate above that point.

Mr Powell's comments were not a direct response to Mr Trump's criticism that he is "not thrilled" with the Fed raising rates as he is trying to stimulate economic growth.


To start with, the September and December rate hikes were never off the table and the markets have pretty much factored in two more rate hikes this year.

Similarly, Esther George, head of the Kansas City Fed, said she expects the central bank to raise rates twice more this year, with more next year. "We are setting policy to do what monetary policy can do to support continued growth, a strong labour market and inflation near 2 per cent".

The Fed's policy rate stands in a range of 1.75 percent to 2 percent.

If Powell sounds confident that the economy won't be unduly hurt by the administration's tariffs on imports and the retaliatory tariffs they have provoked or by a currency crisis in developing markets, Fed watchers will likely conclude that the central bank will maintain a course of gradual rate hikes to reflect a robust economy.

"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.

"The dollar's reaction is a part of a narrative that was established earlier this week, one that we saw in the minutes, with respect to the Fed making progress toward neutral", Issa said.

European stocks look set to open largely unchanged on Friday as trade talks between the US and China ended without progress, raising concerns that a prolonged trade spat could hurt global growth.

White House audio recordings show that President Richard Nixon pressured then-Fed Chairman Arthur Burns to keep interest rates low to boost Nixon's re-election chances in 1972. Trump was once again scolded by the press for criticizing the Fed a second time.

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