Despite Trump rebuke, US Fed to continue steady course

WASHINGTON: Despite booming second quarter growth in the US economy, the Federal Reserve will hold its fire and leave lending rates untouched as it awaits more signs of inflation.

But the central bank, which kicks off its two- day policy meeting on Tuesday, is still widely expected to hike interest rates twice more this year, as inflation mounts, the jobless rate falls and the economy continues to soar.

This plan of action has not gone over well at the White House, however.

President Donald Trump earlier this month publicly chastised the Fed for raising interest rates he says counteracts the economic benefits of tax cuts.

That political interference is casting a shadow over the meeting.

After boosting the benchmark lending rate in March and June, the US economy has continued humming, with inflation at last hitting the Fed’s two per cent target rate.

Most economists say the central bank has every reason to stick to its current course of gradual increases, which has seen the federal funds rate rise seven times since December 2015.

Futures markets overwhelmingly expect rate hikes in September and December, with the probability only increasing after Friday’s blockbuster report that GDP grew 4.1 per cent in the second quarter, the fastest pace in four years.

“At least right now, the economy still looks pretty strong, more than strong enough to keep the unemployment rate coming down,” Jim O’Sullivan of High Frequency Economics told AFP.

While most economists expect growth to slow in the rest of the year, O’Sullivan said “Momentum looks up and chances are momentum will only continue to look up if the unemployment rate continues to fall.”

Still, Trump told CNBC he was “not thrilled” about the Fed’s plans to continue tightening and took to Twitter to say America should be allowed to recoup the losses before rates rise again.

“Every time you go up, they want to raise rates again,” he told the network.

“I am not happy about it. But at the same time, I’m letting them do what they feel is best.”

Cue the sound of breaking glass, with some observers accusing the president of brazenly trespassing on the Fed’s independence. Economists solemnly warn that politicizing monetary policy invariably leads to misfortune. — AFP