A New Powell Doctrine at the Federal Reserve

A New Powell Doctrine at the Federal Reserve

Wednesday President Trump went further and knocked the Federal Reserve for continuing to raise interest rates despite some recent market turbulence.

The Fed last raised interest rates in September and left intact its plans to steadily tighten monetary policy, as it forecast that the U.S. economy would enjoy at least three more years of economic growth. "I just don't think it's necessary to go as fast". Presidents for more than two decades had avoided public comments on the Fed's interest-rate policies as a way of demonstrating respect for the institution's independence.

Trump's comments echo his previous criticisms of recent months, which broke 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.

Fed Chairman Jerome Powell said then that rates remain low enough to continue stimulating economic growth. "I think our nominees have been absolutely first rate".

"He has never attacked the Fed's plan or strategy", Kudlow told reporters on the White House lawn Thursday.

Trump has said the Fed "has gone insane", and that the Fed was 'going loco' about rising rates.

United States long-dated Treasury yields rose again in extension of a trend over the last few weeks fuelled by solid U.S. economic data that reinforced expectations of multiple interest rate hikes over the next 12 months. Now, in traditional economic thinking, low unemployment leads to rising wages, which leads to inflation, which leads to higher policy rates.

Mr Trump doubled down on his attacks on the Federal Reserve Thursday, saying they were "making a big mistake" and were "out of control" in raising interest rates. Economists generally agree that in order to prevent runaway inflation, the Federal Reserve can raise interest rates to restrain the money supply. The central bank has hiked interest rates three times this year and expects to do so again in December. Over the last 30 years or so, bond yields had to hit at least 5 percent to lure equity investors.

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But one unintended outcome is that raising interest rates can scare off investors and precipitate a sell off in equities.

The central bank "is too tight", he added.

"I don't think it's that at all", he said. But the logic behind the Fed policy is not founded on inflation.

Treasury Secretary Steven Mnuchin went to Indonesia this week intending to push President Donald Trump's tough stance on China with U.S. allies - but found himself once cast as the administration's defender-in-chief.

The turmoil came a day after the International Monetary Fund slashed its global growth forecast on worries about trade wars and weakness in emerging markets.

The Treasury Department is due to release its semi-annual Exchange Rate Report this week amid reports that it will not name China as a currency manipulator, despite increasingly contentious exchanges between officials of the world's two largest economies. "The Fed is going wild", Trump said on an interview with Fox News Thursday.

"Diversification is like a shock absorber to weather the storms in the market", Jeanne Thompson, senior vice president at Fidelity Workplace Investing, told CBS MoneyWatch.

But for all the stock market palpitations and risks to particular interest-rate sensitive industries, the message to take from the recent rise in interest rates is an unambiguously good one: This expansion may have some life in it yet. There's a case to be made that the Fed should be even more restrained; economist Paul Krugman declared on Twitter, "The problem is that the 2% target is nearly surely too low: the Fed should actually let inflation rise above that level".

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