Trump's barbs cast shadow over Fed meeting

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Trump's tweet follows one on Monday slamming the Fed for "even considering" another interest-rate increase, laying out arguments against a hike to savor the achievement of a strong USA economy.

After days of heavy stock market falls, Trump tweeted before NY trading opened on Tuesday to warn the Federal Reserve that it would be compounding previous mistakes if it continued to ratchet up United States borrowing costs. "I don't like all of this work that we're putting into the economy, and then I see rates going up, I see China where they're - I mean look at what's happening with their currency, it's dropping like a rock".

After maintaining interest rates at a historic low throughout most of the Obama administration, the Fed has increased the federal funds rate eight times since late 2015 to 2.25 percent from virtually zero.

Nearly all economists expect the Fed to raise rates again at its meeting this week, while many also see the central bank making increases next year, although at a slower pace in the face of a possible economic recession.

But Jerome Powell, the Fed board member Trump named a year ago as chairman, has drawn the president's ire by overseeing three interest rate hikes this year, pushing the country's key lending rate to a range of 2 to 2.25 percent, a benchmark that helps determine other lending rates on loans for USA businesses and consumers and often serves as a guidepost for central banks around the world.

Economists appear unified, though, in the view that whatever the Fed does, it won't be influenced by the attacks Trump has made on the central bank and on Powell personally since the stock market began tumbling this fall.

"The criticism by the administration of the Fed is not going to stop, and it's likely to intensify", said Joshua Feinman, global chief economist at DWS in NY and a former Fed staff economist.

The president has repeatedly exerted pressure on the Fed to hold off on rate hikes, saying the hikes will impede economic progress.

Last week, Trump said he needs the flexibility of lower interest rates to support the USA economy as he fights a growing trade battle against China, and potentially other countries.

Dow Jones chart Christmas 2018 interest rates
Dow Jones chart near technical support level

It is highly unusual for a president to be publicly vocal in any criticism of the Fed, though many presidents have complained privately about higher interest rates. The benefit of that stimulus will likely fade in 2019, slowing growth to a more modest pace.

Analysts said they expect the Fed to move ahead with a rate rise at this week's meeting, but its plans for next year are less certain.

The Twitter outburst renewed the president's rock throwing at the central bank, which he accuses of undermining his economic agenda of tax cuts, slashed regulations and multi-front trade offensives.

But it does place an even greater importance on the Fed's dots this time around.

The policymakers will start their two-day policy meeting on Tuesday.

Private economists surveyed by The Wall Street Journal have tempered their expectations for the path of interest rates next year, and many foresee the Federal Reserve cutting rates starting in 2020.

Powell himself could provide clarity in his news conference if he indicates where he thinks the "neutral rate" is.

"Of course the President respects the independence of the Fed".

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