President Donald Trump accused the Federal Reserve of behaving like a "stubborn child" in refusing to cut interest rates as he attacked the central bank again for keeping credit too tight.
"Now they stick, like a stubborn child, when we need rates cuts, & easing, to make up for what other countries are doing against us. Blew it!," the president said in a tweet on Monday.
Trump has spent months criticizing Fed Chairman Jerome Powell for raising interest rates last year, in Trump's view, too far and too fast. In his latest tweet, Trump reiterated his belief that if the U.S. central bank would cut interest rates, the economy would be stronger.
At the Fed's policy meeting last week, officials decided to leave interest rates unchanged but they opened the door to a cut.
Trump criticized European Central Bank President Mario Draghi in a June 18 tweet after Draghi signaled more monetary stimulus may be on the way for the euro area. Trump said that would make it "unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others."
Expectations are growing that the Fed is on a course to cut rates as soon as its July 30-31 gathering.
As of July 1, the United States will have experienced the longest economic expansion on record, 10 years. The unemployment rate is at its lowest level in nearly 50 years, and inflation -- though quiescent -- has at least gotten close to the central bank's 2% goal. By lifting rates from near zero and shrinking the volume of government-backed bonds on its balance sheet, the central bank has bought itself precious space to fight the next economic downturn when it comes.
Trump tweeted Monday that the Fed "doesn't know what it is doing," and that without rate increases, the Dow Jones industrial average would be "thousands of points higher" and gross domestic product growth would be in the "4's or even 5's."
Trump's pressure on Powell intensified this month. Bloomberg reported last week that the president believes he has the authority to replace Powell as Fed chairman, demoting him to the level of board governor.
Powell was resolute on Wednesday in a news conference after the central bank's policy meeting, saying: "I have a four-year term, and I fully intend to serve it."
In a NBC interview aired Sunday, Trump denied that he had threatened to demote Powell but said he would "be able to do that if I wanted."
The Federal Reserve Act provides explicit protection for Fed governors against removal by the president except "for cause." Courts have interpreted the phrase to require proof of some form of legal misconduct or neglect of basic duties. A disagreement over monetary policy wouldn't meet that bar.
It's less clear, however, whether the president can demote a chairman, removing the person from the top position while leaving the person as a Fed governor.
The Fed lifted interest rates nine times between late 2015 and the end of last year, with four increases coming under Powell. The tightening cycle was historically slow, as central bankers tested whether very low unemployment would send inflation rocketing higher. It never did, and when the economy showed signs of cooling heading into 2019, the Fed stopped raising rates. It is now poised to cut them as global growth slows and inflation remains tepid.
The central bank's job is to keep growth on a stable glide path, sacrificing booms to fend off high inflation and job-costing busts. But the Fed's decision to increase rates for a final time in December, amid tight financial conditions and low inflation, drew criticism from economists and others across the political spectrum and spurred stock market turmoil.
"I don't think the Fed can ever sit back on its achievements and feel comfortable," said Mark Spindel, founder and chief investment officer at Potomac River Capital and co-author of a book on politics and the Fed. "Trump is trying to foam the runway in case there is a slowdown."
But most economists say the major risks to the expansion come not from the Fed but from Trump's trade war with China and slowing global growth. Trump has slapped tariffs on $250 billion worth of Chinese goods and suggested he could tax all Chinese imports if a planned meeting with President Xi Jinping does not go well later this week.
The Fed itself is worried that trade woes, along with other factors, could weigh heavily on the economy.
If it does lower rates, it's possible that it will also stop shrinking its swollen balance sheet, another policy Trump objects to regularly because he sees that as draining stimulus from the economy.
"Uncertainties surrounding the baseline outlook have clearly risen since our last meeting," Powell said in his post-meeting news conference. "We will use our tools as appropriate to sustain the expansion."
Information for this article was contributed by Matthew Boesler and Rich Miller of Bloomberg News and by Jeanna Smialek of The New York Times.
Business on 06/25/2019