Published: Mon, October 15, 2018
Finance | By Loren Pratt

'The Fed has gone crazy' with interest rate hikes

'The Fed has gone crazy' with interest rate hikes

President Donald Trump urged the Federal Reserve on Tuesday not to raise interest rates as fast as it now doing so because he does not want to slow down the USA economy "even a little bit".

For much of the last couple of years, short-term interest rates, which the Fed controls directly, have risen much faster than longer-term rates, which are set based on global supply and demand for bonds.

"It is a correction that I think it is caused by the Federal Reserve with interest rates", Mr Trump told reporters at the White House.

Trump's latest attack on the USA central bank appeared to blame the Federal Reserve for a stock rout that market analysts mostly attributed to fresh concern about his trade war with China. "It's probably healthy. This will pass and the USA economy remains strong".

Finally, investors might want to look at how the Fed is thinking about the assumed relationship between low unemployment, rising wages, inflation and monetary policy.

A swoon in bond funds can be particularly unsettling for investors because they're supposed to be the safe part of anyone's portfolio, offering stability when stocks go on another of their stomach-churning runs.

The Fed has "gone insane", he said.

But those actions have drawn scorn from Trump, who has accused the Fed of moving too fast in raising rates when inflation is minimal and government data points to a strong economy. US stocks opened lower on Thursday but seesawed between losses of as much as a percentage point and small gains.

The Fed pays close attention to how financial markets react to its rate hikes, and equally watches the economic data.

In a CNBC interview, Mnuchin says that Trump understands that the Fed is doing its job. In a late night phone call Wednesday with Fox News, Trump complained: "The Fed is going wild". He sharply criticized the Fed's policy to keep on raising its key interest rate, saying the U.S. central bank has "gone insane". "The problem in my opinion is Treasuries and the Fed". He also said, "No, I'm not going to fire him (Powell)".

The sell-off came a day after the International Monetary Fund said the world economy is plateauing and cut its growth forecast for the first time in more than two years, blaming escalating trade tensions and stresses in emerging markets.

At the meetings in Bali, IMF managing director Christine Lagarde said she "would not associate" Jerome Powell "with craziness".

Powell's goal is to extend the second-longest US economic expansion on record by moving interest rates up just quickly enough to prevent overheating, but not so rapidly that the central bank chokes off growth.

The Fed last raised rates in September and left intact its plans to steadily tighten monetary policy, as it forecast that the US economy would enjoy at least three more years of economic growth.

The yield on the 10-year U.S. Treasury note has risen to around 3.1 percent from around 2.1 percent over the past year.

"Higher interest rates can prove problematic for companies and consumers alike, raising borrowing costs, and reducing the availability of credit", says United Kingdom stock broker Killik in a note to investors this morning.

The policy could eventually bite harder into parts of the economy that are both sensitive to interest rates and connected to politically important industries, such as autos and home construction and sales.

Like this: