President Donald Trump renewed his criticism of the Federal Reserve on Monday, saying the Fed erred in lifting interest rates last year and put the United States at a disadvantage to China.
The Fed "made a big mistake: They raised interest rates far too fast," he said.
Trump lamented that the Fed, which is independent of the White House, did not operate like China's central bank, which is largely subservient to the government.
"The head of the Fed in China is President Xi," Trump said in an interview on CNBC, asserting that "he can do whatever he wants."
Trump has repeatedly attacked the Fed's decision last year to raise interest rates, accusing it of undermining his economic policies and slowing growth. But his comments on Monday come as the Fed has paused its steady march toward higher rates and has begun reorienting policy toward potential cuts amid slowing economic growth.
Before adopting its current cautious stance, the Fed had raised rates nine times since late 2015, with four of those increases coming after Trump nominated Jerome Powell to lead the central bank. It has also been shrinking its large balance sheet of government-backed bonds, which it amassed after the financial crisis to help prop up the economy. It is in the process of slowing and stopping the drawdown.
Trump has nominated four of the Fed's five board members in Washington, but boards at the 12 regional central banks select their leaders. In total, 13 of the 17 people sitting around the policy-setting table were not selected by the White House.
Trump said in the interview that the Fed had not listened to him and that "they're not my people." All four of the governors he selected voted in favor of rate increases last year.
The president has been particularly critical of the Fed's policies as he wages a trade war with China, one that has raised business uncertainty and threatens to slow growth at home and abroad. Trump has said that China devalues its currency, making its goods cheaper to buy and putting the United States at a disadvantage.
"They devalue their currency," Trump said. "They have for years. It's put them at a tremendous competitive advantage, and we don't have that advantage because we have a Fed that doesn't lower interest rates. We should be entitled to have a fair playing field, but even without a fair playing field -- because our Fed is very, very disruptive to us -- even without a fair playing field we are winning."
The Fed operates independently of the White House by design so that its officials are free to make decisions that could cause short-term pain but are better for the nation's long-term economic health.
The president's regular attacks on the central bank break with a decades-old tradition of respecting that independence, and they put the Fed in a political bind: The central bank may need to cut interest rates to support growth and help to anchor stubbornly low inflation, but given ongoing pressure from the White House, such a move risks looking political.
Fed officials regularly say that they will set policy with an eye toward achieving their two goals, stable inflation at around 2% and maximum employment, without paying attention to political commentary.
Powell and his colleagues have opened the door to potential rate cuts in recent weeks, saying the Fed will set policy as appropriate to support its employment and inflation goals.
That's not an explicit sign that a move is coming, but it puts investors and economists on watch for a cut in coming months, especially as uncertainty surrounding Trump's trade negotiations with China lingers. Inflation was already running below the Fed's goal, and an employment report released last week showed a sharp slowdown in hiring, further stoking those expectations.
Market pricing suggested that a cut by the end of July is now about 85% priced into markets, up from about 20% a month ago.
Business on 06/11/2019