President Donald Trump seems to have out himself on a collision course with America’s central bank, the Federal Reserve.
On Monday night, he criticised Fed chairman Jerome Powell and colleagues for raising interest rates, and said the central bank ought to be helping the White House in its trade negotiations with China and other countries.
Mr Powell was appointed by Mr Trump after the incoming president declined to re-appoint Janet Yellen. A former investment banker, he has sat as a governor of the Fed since 2012.
Trump “not thrilled”
He has continued Ms Yellen’s policy of gradually restoring interest rates to something approach normality after the ultra-low levels seen during and after the financial crisis.
Since then, there have been two more hikes, to 1.5%-1.75% in March and to 1.75%-2% after the June meeting of the federal open market committee, the body that sets interest rates.
Mr Powell and his colleagues are committed to continuing with a gradual series of rate rises as and when the economic data justify increases in borrowing costs. But Mr Trump said he was “not thrilled” by this approach, and suggested it was undermining his efforts to stop China and others offsetting US tariffs by allowing their currencies to weaken, making their goods more attractive when priced in currencies such as the dollar.
Rising interest rates tend to attract funds to the US, pushing up the value of the dollar on currency markets. This, in turn, makes it easier for countries who wish to lower the value of their currencies to “devalue by stealth”.
Economic signals say rates should rise
Mr Trump’s remarks hit the dollar on foreign exchanges. It lost 0.34% against the , at €0.8677, and 0.27% against , at £0.7794. But it gained against the , rising 0.18% to 110.2650 against the Japanese currency.
Fed decisions cannot be overturned by the White House, or Congress, but pressure can be brought to bear by both these branches of government. It is charged with achieving a 2% annual inflation target and “maximum employment”, which is not specified but is thought to be defined by the Fed as an unemployment rate of 4.5% of the workforce.
In July, the Fed’s inflation measure, which excludes fuel and food costs because they can be volatile, was 2.4% and the unemployment rate was 3.9%. Both indicators suggest rates ought to be rising, but Mr Trump apparently fears both that his trade strategy will suffer and that the economic boom could slow down.
“I re-appointed him,” he said. “He dis-appointed me.”