Federal Reserve, Powell big economy threat

Treasury Secretary Steve Mnuchin right says the president respects the central bank's independence

JACQUELYN MARTIN APTreasury Secretary Steve Mnuchin right says the president respects the central bank's independence

President Donald Trump really, really wants interest rates to stay low, and judging by his recent tweets and media musings, berating the Federal Reserve Board and Fed Chairman Jerome Powell is the best way to achieve that.

Policy makers debated at last month's meeting how restrictive policy would need to be in the future with "a few" participants arguing that additional rate hikes may be necessary "for a time", while others would need to see clear signs of the economy overheating before taking further action.

Last week, Trump criticised the USA central bank twice, saying it was raising interest rates so swiftly that it threatened the country's economic health.

While a standard Taylor Rule would recommend much higher interest rates than the Fed now envisions - a fact often used to criticize the relevance of policy rules in general - Bullard said that adjusting the rule for changes in the economy shows that current policy is on target. "Because, you looked at the last inflation numbers, they're very low".

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Chairman Powell - who Trump nominated last year to take the place of Janet Yellen, who held the position for four years - has said policymakers are seeking to restore rates to "normal" levels after the 2008 financial crisis.

However, the same Fed minutes also noted global growth concerns and worries the USA dollar could sink lower, explaining the somewhat hawkish view on U.S. markets overnight. Instead of persuading the FOMC to keep rates low, it could make the committee more determined to hike them before the ever-watchful eyes of the world's banks and investors. The Fed has always been seen as needing to remain free of political pressure to properly manage rates, and presidents have generally respected that independence, especially publicly. Neutral is the level of interest rates judged to be neither accommodative nor punitive to the economy.

NO: The Fed is an independent body and they are making decisions on what they think the market can handle.

"Overall, nothing here to change our view that the Fed will persist with its 'gradual approach of hiking by 25 [basis points] each quarter", Paul Ashworth, chief US economist with Capital Economics, said in a note. Furthermore, "some" at the meeting said risks grew as the U.S. economy increasingly outpaced its rivals" more sluggish growth "because of the potential for further strengthening of the dollar'. The rate helps determine what consumers pay on their mortgages, credit cards and other borrowing.

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Even the possibility of a headwind to economic growth, however, has provoked Trump into a series of attacks on the Fed and Powell.

The Fed has been gradually increasing rates since 2015.

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