Call 'em insane, but Fed officials likely to keep raising rates

Drew Angerer  Getty Images President Donald Trump

Drew Angerer Getty Images President Donald Trump

Compared to the recent years in which the Fed has battled both high unemployment and weak inflation, it is a remarkably rosy scenario that, most analysts and officials have said, justifies what the Fed has done so far and offers little reason to shift gears.

"It's a correction that I think is caused by the Federal Reserve with interest rates", Trump said when asked by reporters in the Oval Office about the stock market swoon.

"I think the Fed is making a mistake", Trump told reporters as he arrived for a campaign rally ahead of the United States mid-term elections.

"We are already witnessing some softness in highly rate-sensitive segments of the economy, such as the housing sector, where home price appreciation has slowed somewhat and fewer new homes are being built than previously in the cycle", said Rick Rieder, the chief investment officer of global fixed income at BlackRock, in a note on Thursday.

Trump's remarks, almost unprecedented for a US leader, may roil markets further in retreat on the heels of hefty tariffs imposed on aluminum and steel imports from much of the world, and about half of USA imports from China.

Tokyo, Hong Kong and Shanghai all plummeted around four per cent in morning trade, as investors fretted about surging interest rates and the ongoing US-China trade war. "We expect the Fed will hold on for the ride". A full term on the seven-member Fed board lasts 14 years - a lengthy period that was seen as liberating Fed officials from any fear that their rate decisions might cost their jobs.

U.S. President Donald Trump looks on as Jerome Powell, his nominee to become chairman of the U.S. Federal Reserve, speaks at the White House in Washington, U.S., November 2, 2017.

This week, amid the longest stock-market sell-off of his presidency, Trump has described the central bank as "crazy" and "going loco" for raising interest rates.

"No, I think the Fed is making a mistake". Some investors - and even President Donald Trump - worry the Fed could be moving too quickly.

Powell and Trump haven't personally discussed the matter, the Fed chair has said, but Trump's rhetoric has alarmed some Democrats and Republicans on Capitol Hill. The Fed's main interest rate, the federal funds rate, now stands between 2 and 2.25 per cent. Last month it indicated it may raise rates in December for the fourth time this year, three times in 2019 and perhaps once in 2020.

"I wouldn't associate Jay Powell with craziness", Managing Director Christine Lagarde told CNBC in an interview.

Past U.S. presidents have criticized the central bank, but the recent run of invective was unusual even for Trump.

Also on Tuesday, Trump had criticized the Fed, saying he does not think it's necessary to raise rates so fast.

In September, the Fed raised interest rates by 25 basis points for the third time in 2018, raising the target range for its benchmark rate to 2%-2.25%.

But Trump loves to tout good economic news, and either dismisses bad economic news or blames it on the Fed. Economic experts are split on how long the strong economy will continue, and some investors are convinced that a number of stocks - particularly technology companies - are overpriced and were due for a slide. "It is doing well", Trump said.

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