Trump slams Federal Reserve chief
Still, Dow soars as chairman hints of fewer hikes.
President Donald Trump took fresh aim at Jerome Powell on Tuesday, slamming the Federal Reserve chairman he hand-picked for the job in an interview with The Washington Post.
The president, who has frequently expressed his displeasure with the central bank chief ’s repeated interest rate hikes this year, said he’s “not even a little bit happy” with his appointment of Powell earlier this year.
Trump told the newspaper that he thinks the Fed – which has raised its key short-term rate three times this year to a range of 2 percent to 2.25 percent – is “way off base” and is “making a mistake.”
Yet stock markets soared Wednesday after Powell suggested in a speech that the Fed may not have to raise rates much more before hitting its long-term target, walking back his comment in October that current rates are a “long way” from that benchmark.
Wall Street cheered. The Dow Jones Industrial Average closed up 617 points, or 2.5 percent.
Trump, meanwhile, told the Post that higher borrowing costs are slowing the U.S. economy. He also blamed the spike in rates for the recent stock market selloff and General Motors’ decision this week to close plants and cut more than 14,000 jobs.
“I’m doing deals, and I’m not being accommodated by the Fed,” Trump told The Post. “They’re making a mistake because I have a gut and my gut tells me more sometimes than anybody else’s brain can ever tell me.”
Powell and other Fed officials have said they need to gradually move rates higher now to head off an eventual runup in inflation as low unemployment pushes up wages and prices.
But Powell said Wednesday that rates “remain just below the broad range of estimates of the level that would be neutral for the economy – that is, neither speeding up nor slowing down growth.”
Fed policymakers’ median estimate of the long run rate is 3 percent, but that’s based on a range of 2.5 to 3.5 percent.
For now at least, Fed policymakers tentatively plan to increase rates again in December and three times next year. The Fed has hiked rates a total of eight times since 2015 after keeping them near zero for years after the 2008 financial crisis and recession.
Powell spooked markets in an Oct. 3 interview with Judy Woodruff of PBS, saying the Fed’s key rate was still “a long way from neutral at this point, probably.” At the time, Wall Street interpreted the comment as a sign that the central bank might make a policy mistake and raise rates more than anticipated, a fear that sparked a sell-off in the stock market.
After Powell’s comment Wednesday, Wall Street economists began talking about a possible pause next year after the anticipated hike next month.
“It’s a good thing Powell dropped the stock market a lifeline by saying interest rates were not that far away from neutral today,” says Chris Rupkey, chief financial economist at MUFG, a Tokyobased global bank with offices in New York.
“It gave stocks a badly needed confidence boost and might just get the president off his back.”
The Fed chairman also indirectly responded to Trump’s criticism by saying the Fed must boost rates to head off a spike in inflation down the road. While Powell laid out a rosy economic outlook highlighted by the 3.7 percent unemployment rate, a 49-year low, he said, “We know that things often turn out to be quite different from even the most careful forecasts.”
“Our gradual pace of raising interest rates has been an exercise in balancing risks,” Powell added. “We know that moving too fast would risk shortening the expansion. We also know that moving too slowly – keeping interest rates too low for too long – could risk other distortions in the form of higher inflation or destabilizing financial imbalances.”
Powell also said the Fed must lift rates now because its moves take time to play out. “We also know that the economic effects of our gradual rate increases are uncertain, and may take a year or more to be fully realized.”
Although Powell has become a regular target of Trump, it is not common for presidents to openly criticize the head of the Federal Reserve. Wall Street analysts and money managers have expressed concern that the president’s comments about Powell, the Fed and monetary policy could threaten the central bank’s independence.
Still, Wall Street pros don’t expect Powell or fellow Fed members to bow to pressure from Trump.
“Despite presidential jawboning, the markets fully expect the Fed to retain its independence and not be swayed by politics,” says Joe Quinlan, chief market strategist at U.S. Trust.
The Fed is widely expected to raise short-term rates another quarter of a percentage point at its December meeting, which would lift rates to a range of 2.25 percent to 2.5 percent.
An important part of the Fed’s job is to communicate effectively with financial markets, and Trump’s criticism of the nation’s top central banker makes that job more difficult, says Axel Merk, chief investment officer at Merk Investments.
“If you now have our tweeter-in-chief torpedo the Fed, the Fed’s words carry less weight,” Merk told USA TODAY. “Trump’s talk is not helpful.”