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Apart from a modest knee-jerk reaction, investors seem confident that President Donald Trump's criticism of the Federal Reserve's rate hikes will not change the central bank's policy. But it is possible that the work of Fed President Jerome Powell will become much more difficult.
"It's not that I do not take it seriously, but I think there's more bluster than a real intention to change Lara Rhame, chief economist to the states US at FS Investments, in an interview.
In a CNBC interview, Trump said Thursday that he was not "thrilled" by the Fed's rate hikes but that he the "let them do what they felt." On Friday, Trump stepped up criticism via Twitter, accusing this tighter monetary policy of punishing the United States by contributing to a stronger dollar.
"The States United States should be allowed to recover what has been lost due to the illegal handling of currency and BAD Trade Deals. "China, the European Union and others have manipulated their currencies and their interest rates down, while the US is increasing rates as dollars become more and more every pbading day – by taking away our great competitive advantage.As usual, not an equal playing field …
– Donald J. Trump (@realDonaldTrump) July 20, 2018 [19659005] …. The United States should not be penalized because we are doing so well.Tightening now hurts everything we have done.The United States should be allowed to recover what was lost due to handling The Debt Matters and We Increase the Rates – Really?
– Donald J. Trump (@realDonaldTrump) July 20, 2018
The remarks seemed to frighten the dollar, with the ICE US Dollar Index
DXY, -0.65%
a measure of the US unit against six major rivals, down about 0.6%. But Treasures saw little impact, with the yield on the 2-year Treasury note more rate-sensitive
TMUBMUSD02Y, + 0.33%
up 0.9 basis points to 2.595%
The Fed has recorded two interest rate hikes up to now this year, raising the fed funds rate range to 1.75%, which is still low by historical standards. The Fed said it was on track to offer two more rate increases this year. According to CME's FedWatch tool, Fed futures traders expect a 61.7% chance that policymakers will increase their rates at least twice this year, compared to 58.7% the day before and 56.6% last week.
trade, but held small gains at noon. The S & P 500
SPX, -0.06%
increased by 0.1%, while the Dow Jones Industrial Average
DJIA, -0.02%
increased by 0.2%
Independence is held sacrosanct by policy makers and economists, but is increasingly considered as vulnerable to the repercussions of a global financial crisis that has emerged. the central banks of the world have taken controversial and extraordinary measures, often acting in a vacuum while politicians are moving away.
Read: Central Banks Are Too Powerful for Their Own Good, Says Former Vice Governor of the Bank of England
Trump's Criticism n '# 39; was not a big surprise. In recent weeks, White House officials have criticized the Fed. In addition, the White House sought Thursday to clarify Trump's remarks in the interview, saying that they have not expressed a desire to question the Fed's independence.
Still, some badysts have said that damage has been done. Greg Valliere, chief strategist at Horizon Investments, said Trump is expected to increase criticism as the Fed continues to raise rates.
If the Fed succeeds, it will make two more raises this year and two more three in 2019, Powell will likely be criticized not only by Trump, but by Democrats like Sens. Elizabeth Warren and Bernie Sanders, who could argue that an aggressive narrowing is not necessary.
As a result, Powell "may feel compelled to show that it is not. But if Powell goes more slowly, there will be inevitable speculation in the markets that political pressure has affected politics, said Valliere, although the slower rate of increases was based solely on economic considerations
"We understand that the Fed's policy is managed by a committee, but the focus will be on Powell, and we fear that he can not win; No matter what he does, his motives will now be in doubt, "he said.
The decision-makers have shown good blood. St. Louis Fed President James Bullard said Trump's public criticism would have no impact on the deliberations. "I think the committee will make the best judgment possible," he said.
Rhame argued that policy makers and Fed staff are unlikely to be influenced by noise. Financial markets would be more agitated if Trump threatened to remove Powell or directly threaten the Fed's independence, which she does not see as likely.
