Trump hawks: Clarida, new Fed member, wants to raise rates

WASHINGTON (Reuters) – US President Richard Clarida, Donald Trump, made his first speech Thursday, just days after Trump again criticized the Fed for raising interest rates. His message: rates should continue to rise.

"If the data is provided as I wish, I think that a further incremental adjustment of the federal funds rate will be appropriate," said Fed Vice President Clarida Thursday during a keynote address. public for the first time.

The speech highlighted the gap between Trump's scathing rhetoric and the reality of a Fed commission engaged in long-standing plans to bring the record lows of the crisis back to more appropriate levels for the United States. a healthy economy.

Trump has had a large space to reorganize the central bank, with five seats out of the seven that the Fed can hold, including the influential presidency that sets the tone for political debate.

However, at the request of advisors such as the Treasury Secretary, Steven Mnuchin, and others, sensitive to the importance of preserving market confidence in the Fed's independence, he selected a collection of economists and relatively traditional centrist republicans.

As a group, they showed no sign of a change of direction by former President Janet Yellen to guide a developing economy, as the Fed had predicted before Trump's election. in November 2016.

Part of Trump's tax, spending and trade policies have justified a rise in interest rates. Tax cuts and additional spending led to higher growth than anticipated by the Fed, while tariffs on large industrial products such as steel increased the risk of inflation. .

ALWAYS LOW

Fed policymakers generally agree that the current rate of rate hikes is justified not as part of a slowdown, but to reduce the last stimulus put in place. during a recession almost 10 years ago. Even after Yellen's rate hikes at the end of 2015, the Fed's key rate is less than half of what it was on average between 1990 and 2007, at the start of the last recession, and remains strong enough. to support the economy, without curbing it.

(Graphic: The war of Trump's words on the Fed – tmsnrt.rs/2PlZ6jb)

Clarida, who was confirmed by the Senate in August after Trump's first wave of criticism of Fed rate hikes, is only the last to join the club.

His recent writing, as an economist at Pimco and as a currency theorist, was consistent with the Fed's belief that it was time to "normalize" rates from "cowardly" to "neutral" .

A 2015 essay suggested that going beyond the neutral position would be a "mistake", suggesting that he might be in favor of an earlier end to rising rates than his colleagues, including Powell, who anticipate to move to a slightly "restrictive" level. His first appointment as vice president, however, clearly placed him in the Powell consensus.

The recent rate hike in September, described as insane by Trump, was only "a further step in removing the extraordinary degree of accommodation put in place as a result of the global financial crisis" said Clarida.

He said the political pressure "will in no way be a consideration" in policy making.

If the other current Fed board candidates, Trump, are approved, the consensus will only get stronger.

Among them, Nellie Liang, a financial stability expert, recently retired after a career with the Fed; economist Marvin Goodfriend, whose earlier writings suggest that he would favor higher interest rates to protect himself from inflation; and Kansas community banker Michelle Bowman should not influence the political debate at a designated seat to defend the interests of small financial institutions.

To change the dynamic, he would either have to give up the pending appointments, or let them expire when a new Congress takes office in January, or launch his handpicked president, Jerome Powell, at the start of a second term. Under the laws governing independent bodies such as the Fed, it would be difficult to dismiss a board member of the Fed "for just cause", the language courts ruled that political disputes should be excluded .

But the pressure may rise, as the mid-term elections on November 6 are imminent and it will be necessary to follow the presidential race for 2020. The stock markets that Trump has rewarded for reaching new highs. the past few days, as investors have adjusted to increased business risks, slower growth prospects and higher long-term US Treasury yields, which have provided investors higher. a safe alternative to actions.

Some Trump supporters, including former campaign manager, Corey Lewandowski, have taken note, saying that Trump's impending appointments to the Fed should be swapped for candidates promising low rates.

But it is not certain that this would be of importance.

Powell, as chair of the most formative voice in politics, took care to form his own constituency. Familiar on Capitol Hill for years in Republican circles and political advocacy, he has been present in congressional offices during his first months as President of the Fed. High-ranking Republicans supported him when Trump criticized the Fed's work.