Rate increases OK, Mnuchin says
Despite gripes,Trump respects Fed,Treasury chief insists
Treasury Secretary Steven Mnuchin on Sunday suggested it was fine for the Federal Reserve to raise interest rates after President Donald Trump recently criticized the central bank for doing just that.
Mnuchin acknowledged that it was responsible for Fed Chairman Jerome Powell and his colleagues to increase rates as the economy grows faster and inflation picks up.
“The Fed has been targeting 2 percent inflation,” Mnuchin said on Fox News Sunday. “Obviously, with 2 percent inflation we have to have at least slightly higher interest rates to manage through that.”
Powell and his fellow policymakers are widely expected to hold interest rates steady when they meet this week to discuss monetary strategy. In June, they raised their target range for the federal funds rate to 1.75 percent to 2 percent and penciled in two additional, quarter-percentage-point increases for the second half of this year.
Mnuchin’s remarks came after Trump made a series of comments about the Fed that raised concerns among some economists about the central bank’s ability to carry out monetary policy free of political interference.
In an interview with CNBC on July 19, Trump voiced frustration with the Fed for raising rates.
“I am not happy about it,” the president said. “But at the same time, I’m letting them do what they feel is best.” Trump also called Powell, whom he appointed to succeed former Chairman Janet Yellen, “a very good man.”
Trump’s remarks broke from more than two decades of White House tradition of avoiding comments on monetary policy, out of respect for the independence of the central bank and its dual goals of encouraging low unemployment and stable prices.
Mnuchin insisted that Trump respects the Fed’s role, even though the president has “concern” about interest rates going up. “We as an administration absolutely support the independence of the Fed,” Mnuchin said.
Noting that financial markets expect rates to keep rising, Mnuchin said, “The only question is how far and for how long” they’ll increase.
“We think the Fed will be very careful in managing the economy,” he added.
Speaking separately on Fox’s Sunday Morning Futures, Vice President Mike Pence suggested that the central bank needed to avoid squelching the stronger growth the economy is experiencing.
“We don’t want policies, whether on Capitol Hill or elsewhere, that diminish the tremendous energy we have in this economy,” Pence said.
Both Pence and Mnuchin echoed Trump’s enthusiasm about the U.S. economy after Friday’s news that it grew at a 4.1 percent annual pace in the second quarter, the fastest since 2014.
The surge shows the U.S. is “well on the path” for four or five years of sustained annual growth of 3 percent, Mnuchin said — an outlook at odds with many economists who see the pace of expansion ebbing in 2020 and beyond.
The second-quarter pick-up was propelled by consumer spending, business investment and a decline in the trade deficit. Yet as the effects of new tax cuts fade, economists expect growth to moderate, with forecasts showing it will come in around 3 percent in 2018. That would still make this year’s performance the best since 2005.
But billionaire industrialist Charles Koch, who leads a powerful policy and political network, said Sunday that he worries Trump’s actions on trade and tariffs put the booming economy at risk of recession.
While saying it’s impossible to know for sure because the president’s trade policy remains fluid, Koch said the greater level of trade restrictions invites a greater the risk of severe economic fallout.
Koch said protectionism at any level is detrimental. “Every nation that’s prospered is one that didn’t engage in trade wars,” he said.
He and brother David Koch didn’t support Trump in the 2016 campaign, but the Koch network has since praised his administration’s efforts to cut taxes and regulations. A White House spokesman didn’t immediately respond to an email seeking comment.
In June, the Koch network said it was planning a “multiyear, multi-million-dollar” campaign to promote free trade and oppose Trump’s moves to impose tariffs. The effort is to include advertising, voter mobilization and lobbying.