Trump balks as Fed poised to raise key interest rates
WASHINGTON — President Donald Trump on Monday urged the Federal Reserve not to raise interest rates, but Fed officials are widely expected to do so this week despite the president’s ongoing public effort to dissuade the U.S. central bank from putting any brakes on the economy.
“It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!” Trump wrote Monday in a Twitter post.
Fed officials will conclude a two-day meeting on Wednesday, and Wall Street traders predict nearly an 80 percent chance the Fed raises rates a quarter point this week, setting them at a range of 2.25 percent to 2.5 percent. That hike would keep rates low by historical standards but put them at the highest level in a decade.
The president’s repeated exhortations against the Fed raising rates break with his predecessors, who generally avoided commenting publicly on the central bank’s policies to protect its credibility and independence.
Interest rate increases are meant to check inflation, but they can also slow the economy, adding another challenge to Trump’s efforts to deliver on his promises of booming growth. A slowing economy — or a recession — could damage Trump’s reelection efforts in 2020.
While the U.S. economy looks strong right now, there are signs of a potential slowdown. On Monday, the Dow Jones industrial average closed off 507 points, or 2.1 percent, to 23,592, extending a slide after a 496-point loss Friday. The blue-chip barometer is notching its worst month in more than three years. The S&P 500 fell 54 points, or 2.1 percent, to 2,545.
The Dow is on track to end 2018 in the red, potentially notching the worst performance in a decade and erasing one of Trump’s top talking points that the market has thrived in his tenure. The housing market has also been weak, and business investment, which bounced earlier this year, dried up in the third quarter.
Still, the Fed is worried about the economy overheating and says small, gradual interest rate increases are the best way to tap the brakes a bit to ensure inflation doesn’t rise too quickly and bubbles don’t form.
Unemployment remains at an almost 50-year low and growth is expect to be around 3 percent this year, well above the 2 percent the Fed thinks is normal for the U.S. economy. Wages are also growing at their fastest pace in a decade in nominal terms, a sign more inflation could be coming.
Investors and the White House will be watching carefully Wednesday for what the Fed and leader Jerome Powell indicate is likely to happen in 2019. The Fed had predicted three more rate hikes next year, but many economists now think that is too many.
In recent months, Trump has lashed out at the Fed and its leaders, calling the central bank “loco” and “out of control” and saying he is “not even a little bit happy” with Powell, whom Trump appointed to the top job just over a year ago after he decided not to reappoint former Fed Chair Janet Yellen.