Jerome Powell, governor of the U.S. Federal Reserve and President Donald Trump’s nominee as chairman of the Federal Reserve. (Photographer: Olivier Douliery/Bloomberg)

Trump Says Federal Reserve Rate Hikes Are His ‘Biggest Threat’

(Bloomberg) -- President Donald Trump called the Federal Reserve his “biggest threat,” again criticizing the central bank for endangering economic growth through interest-rate hikes.

“The Fed is raising rates too fast,” Trump said Tuesday in an interview with “Trish Regan Primetime” on Fox Business Network.

Fed Chairman Jerome Powell was nominated by Trump and approved by a Republican-controlled Senate earlier this year. In the interview, Trump said the central bank is “independent so I don’t speak to them, but I’m not happy with what he’s doing because it’s going too fast.”

Trump has repeatedly criticized the Fed for rate increases, ratcheting up his rhetoric in recent days. Last week he slammed the central bank as “out of control” and said it was “going loco,” blaming its monetary policy for a sell-off in the stock market.

The Fed has raised its benchmark policy rate three times this year, by a quarter-percentage point on each occasion, bringing to six the number of hikes since Trump was inaugurated. The target range for the federal funds rate, currently at 2 percent to 2.25 percent, is low by historical standards. When factoring in inflation, the rate on short-term borrowing is near zero percent.

Trump’s criticisms mark a departure from the practices of his recent predecessors. Presidents for more than two decades avoided public comments on Fed policy as a way of demonstrating respect for the institution’s independence.

Yellen’s Reaction

Former Fed Chair Janet Yellen on Monday said that Trump’s criticism threatens the institution’s independence, adding that it’s “not a desirable thing for a president to comment so explicitly on Fed policy.”

“To politicize it and to undermine that is something that is essentially damaging to the Fed and to financial stability,” said Yellen, whose term as chair expired early this year. “Obviously, presidents can speak out if they choose to and give their opinions about policy. There’s no law against that, but I don’t think it’s wise.”

Trump was more specific Tuesday in his critique, pointing to low inflation numbers. The Fed’s preferred measure of price pressures rose just 2.2 percent in the 12 months through August, just slightly above the central bank’s 2 percent target, and no Fed officials have raised alarm bells over the possibility it may soon accelerate.

While criticism of monetary policy by a president has become taboo, Trump isn’t alone in questioning why the Fed continues to raise rates while inflation remains tame.

Trump Says Federal Reserve Rate Hikes Are His ‘Biggest Threat’

“The man has a point,” Neil Dutta, an economist at Renaissance Macro Research LLC in New York, wrote in a note to clients after Trump’s remarks were made public. “No one wants the president to opine on the Fed. But, if the Fed keeps hiking with inflation below target and limited signs that it is picking up, it would suggest that policy is already neutral or tight.”

Powell and other Fed officials have said they’re trying to balance the risks of causing the economy to overheat by moving too slowly, and smothering the second-longest economic expansion on record by hiking too quickly.

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