Federal Reserve snubs Trump by refusing to cut interest rates
The US Federal Reserve snubbed Donald Trump’s call for a cut in interest rates on Wednesday as the central bank noted economic activity was still rising at “a solid rate”.
After a two-day meeting the Fed board unanimously decided to hold rates steady at a range between 2.25% and 2.5%.
The decision follows months of unprecedented public criticism of the Fed from Trump who has called its decisions “crazy” and discussed firing the Fed chairman, Jerome Powell.
On Tuesday Trump stepped up his criticism in a two-part attack that unfavorably compared US monetary policy with that of China and argued the US economy would go up “like a rocket if we did some lowering of rates”.
He suggested that the Fed cut rates by “one point” and begin stimulating the economy again by buying bonds and pumping money into the markets as it did in the wake of the recession – a move known as quantitative easing.
At a press conference following the decision Powell said the Fed had not discussed Trump’s comments. “As you know we are a non-political institution,” said Powell. The Fed looks at all the available data and consults widely before making its decision but political factors play no part in “making a decision,” he said.
While previous presidents have exerted pressure on the Fed none has done so so publicly. The Fed is supposed to be independent and its independence is regarded as central to investors’ faith in the US financial system.
White House officials including Larry Kudlow, Trump’s top economic adviser, have recommended that the Fed cut rates by half a point.
The Fed has hiked the rate nine times since December 2015 as the economy has strengthened. Unemployment is now at a record low and the US has added new jobs for an unprecedented 101 months in a row. Last week the Department of Commerce announced US gross domestic product (GDP) – the broadest measure of the economy’s health – grew at 3.2% in the first three months of the year, stronger than expected.
Cutting rates is the largest tool at the Fed’s disposal to stimulate the economy if and when it dips into recession again.
The Fed decision comes as Trump has attempted to elect two of his allies to the Fed’s board. The former presidential candidate and pizza company chief executive Herman Cain withdrew his nomination last month after his economic expertise was called into question and previous allegations of sexually harassment resurfaced.
The nomination of Trump’s second pick, Stephen Moore, a conservative economic commentator, has also run into difficulties. Moore allegedly owes $75,000 in taxes, was held in contempt for failing to pay ex-wife over $300,000 and has been criticized for a series of misogynistic remarks.