Trump Warns Fed Ahead of Key Policy Meeting

The US central bank is expected to raise benchmark rates but turn dovish on rate hikes in 2019, say analysts
December 18, 2018 Updated: December 18, 2018

WASHINGTON— President Donald Trump on Dec. 18 called again on the Federal Reserve to refrain from hiking interest rates ahead of the central bank’s two-day policy meeting. Trump urged the Fed to “feel the market” before making its decision.

The Fed is broadly expected to raise its benchmark interest rate after the conclusion of its meeting on Dec. 19. If it raises the rates, it would be the fourth rate hike of 2018 and the ninth one since the central bank started inching rates up from nearly zero percent three years ago.

The Fed’s decision has an impact on everyone from consumers to investors. There’s a 69 percent chance that the policymakers will raise interest rates by a quarter percentage point, according to the CME Group’s FedWatch tool, which measures market-based expectations for future rate hikes.

In September, the Fed’s board raised the benchmark rate to a range of 2 percent to 2.25 percent and signaled that it would continue to lift the rates in December and through 2019. Trump earlier criticized the Fed, blaming the central bank for raising the rates too fast and causing market volatility. Trump issued two warnings this week again asking the Fed to avoid “another mistake.”

“I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake,” Trump wrote on Dec. 18.

“Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!” With the “50 B’s” Trump is referring to the Fed reversing its policy of quantitative easing, which may be depressing the stock market.

According to the Wall Street Journal article, “economic and financial signals” do not justify raising rates. The Fed’s inflation measure, the “PCE deflator,” has been in decline for months, and U.S. economic growth may be slowing, stated the Journal’s editorial board.

In another tweet, Trump warned about the gloomy outlook for the rest of the world.

“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!” he wrote on Twitter on Dec. 17.

Growth momentum is still strong in the United States. Economists, however, are delivering a gloomy outlook for the rest of the world. In its latest report, the International Monetary Fund revised down its global economic growth projections due to slowing Chinese economic growth, the U.S.–China trade war, and financial worries in emerging markets.

“We are facing a period where significant risks are materializing and darker clouds are looming,” Christine Lagarde, IMF chief wrote in a recent blog post.

‘Dovish Hike’

The Fed will most likely raise the rates, according to Jay Sharifi, an investment adviser at Legacy Wealth Management.

“If we actually take a look at the fundamentals of our economy they are all pointing in the right direction. It’s all going really strong,” he said.

The recent market selloff is more of a sentimental issue, he explained, adding that the Fed may have to soften its approach in order to slow down the market sell-off.

The uncertainty concerning interest rates has fueled the recent stock market volatility. The Dow Jones Industrial index lost 12 percent since its peak in early October this year.

“The market is responding because the rising interest rate is not good for a debt-fueled economy like we’re in,” said Craig Kirsner, investment adviser at Stuart Estate Planning Wealth Advisors, adding that the increase in rates makes borrowing more expensive for consumers and businesses.

Trump “is doing what he needs to do to try to keep the economy strong. Keeping interest rates low is good for him and good for the economy,” he explained.

But the central bank is “between a rock and a hard place,” he said. “The Fed has to keep raising rates or else the economy will overheat.”

Citi economists also expect a dovish hike at the end of the policy meeting. The Fed would continue to project confidence about the economy and the benign trends in inflation, the economists wrote in a report.

The Fed will “probably indicate that they expect to increase interest rates further, but we do not expect the Fed to clarify its intentions for the March meeting or any other future meeting,” the report noted.

Follow Emel on Twitter: @mlakan
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