Trump trespasses on Fed's independence by blasting Powell's rate hikes

Andrew Cummings
July 20, 2018

Global markets are falling late on Friday morning after US President Donald Trump threatened to levy new tariffs on more than $500 billion of goods from China.

Around $505 billion of Chinese goods were imported to the 2017, leading to a trade deficit of almost $376 billion, US government data shows.

"I'm not doing this for politics, I'm doing this to do the right thing for our country", Trump said. "Because we go up and every time you go up they want to raise rates again, and I don't really-I am not happy about it".

The White House was forced to release a statement saying "of course" President Trump respects the "independence" of the Federal Reserve after he blasted the Fed's decision to raise interest rates.

President Donald Trump broke a multi-decade tradition by weighing in on the Federal Reserve's monetary policy. But he also told CNBC during the campaign that he is a "low interest-rate-person". While the Fed has raised rates, they remain low on a historical basis.

In the meantime, currency traders may need to pay closer attention to the president's Twitter feed.

Trump's comments come in the wake of a growing rift between the two biggest economies.

His comments did not help to push the dollar down versus the yuan, however. "I want them to do well", he said.

This was not the first time Trump departed from a long-standing practice of US presidents steering clear of commenting on Fed policy and the value of the dollar, a custom he dismissed on Thursday.

"We're down a tremendous amount", Trump said in the interview, which was recorded on Thursday, about trade imbalances with China.

"This is extraordinary to see Trump go after the Fed like this", said Greg Valliere, chief global strategist at Horizon Investments. The probability investors assigned to a Fed rate hike in September was little changed near 90 percent after the president's remarks, while the probability of a December hike was also holding near 65 percent, according to trading in federal funds futures.

The Fed is led by chairman Jerome Powell, who was hand-picked by Trump in February to succeed Janet Yellen for a four-year term.

Last month, the Fed raised its benchmark rate for a second time this year and projected two more increases in 2018.

USA companies may find themselves less able to compete globally as import tariffs contribute to rising input costs, forcing them to raise prices or lower their profit margins. In particular, the Fed's most recent rate hikes could dilute some of the benefit of the tax cuts Trump signed into law past year.

"The secretary will nearly certainly hear complaints about these remarks at the G20, especially in his bilateral discussions", said Mark Sobel, a former senior Treasury official who left earlier this year, after serving as USA executive director at the International Monetary Fund.

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