IMF Defends Rate Hikes After Donald Trump Comments On US Federal Reserve

Irving Hamilton
October 12, 2018

Lagarde said central bank rate increases such as those by the policy-setting US Federal Reserve were justified by fundamentals. That is a good thing.

Trump has repeatedly criticized the Fed over the past 24 hours as markets plunged, saying Wednesday that the central bank was "going loco".

"They lived too well for too long", Trump said of the Chinese during his Fox News interview.

On Wednesday, the Dow plunged more than 830 points as investors anxious that rising interest rates might slow economic growth. Presidents for more than two decades had avoided public comments on the Fed's interest-rate policies as a way of demonstrating respect for the institution's independence.

"I'm paying interest at a high rate because of our Fed", he added, referring to the cost of servicing the U.S. deficit.

Fed spokeswoman Michelle Smith declined to comment on Trump's remarks.

"The Fed has gone insane", Mr. Trump told reporters while traveling to Erie, Pennsylvania, for a campaign rally.

Among investors in federal funds futures, continued Fed rate hikes remained a solid bet, with a December increase assigned a 78 percent probability - down only 3 percentage points from before Wednesday's market turmoil and Trump's comments. The problem I have is with the Fed.

Pentagon grounds F-35 fighter jets in wake of crash
An official report questioned earlier this year whether the F-35 was ready for combat after dozens of faults were found. The Air Force, Navy and Marine Corps all have their versions of the F-35, each of which costs about $100 million.

But in August, Trump said he was "not thrilled" with Powell, though he took his criticism much further on Wednesday when he said the Fed was "crazy".

The growing trade war prompted the International Monetary Fund on Tuesday to cut its global economic growth forecasts for 2018 and 2019. He has imposed tariffs on an estimated half of all Chinese goods imported to the U.S., worth some 250 million dollars.

White House economic adviser Larry Kudlow on Thursday said Trump's opinions had no weight on the Fed's actions.

"The markets are fraught with peril", warned Stephen Innes, head of trading at OANDA, adding there was a "horrible intersection of risk aversion" from the US-China trade conflict and rising US interest rates.

The biggest driver for the market over the last week has been interest rates, which began spurting higher following several encouraging reports on the economy.

"They're being too aggressive", Trump said.

The US stock market sell-off last night saw the S&P 500 and the Dow marking their biggest daily declines since February 8 with technology stocks at the centre of the falls.

Even the sharp rise in long-term bond yields that has spooked equity investors this week is a sign of an economy working more normally than it has since the financial crisis. It is also expected to raise rates again by the end of the year.

Other reports by

Discuss This Article

FOLLOW OUR NEWSPAPER