Published: Thu, August 23, 2018
Finance | By Kristine Clayton

Fed Signals Readiness to Hike Again If Economy Stays On Track

Fed Signals Readiness to Hike Again If Economy Stays On Track

The dollar was under further pressure today after President Trump criticised the Federal Reserve and threatened to deepen his trade dispute with China. "I'm not thrilled", the president, who himself appointed Powell to lead the central bank, told Reuters on Monday. "I should be given some help by the Fed".

A day later, Dallas Fed President Robert Kaplan, who tends to align his views with those of Powell, released an essay that signaled he views another three or four rate hikes as "the best chance" for delivering continued economic growth, given the strength of the economy. Nevertheless, the rate increases have drawn criticism from President Donald Trump.

Without gradual rate interest rate rises, policymakers worry, the economy could overheat, forcing the Fed to raise them aggressively and possibly sending the United States into recession. The Fed has raised rates twice this year and is widely expected to tighten policy again next month.

The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018.

In currencies, the dollar came under pressure after Trump reiterated his displeasure at the Fed's rate hikes, saying the central bank should do more to help him boost the U.S. economy.

"Forgetting his comments, adding fiscal stimulus this late in the cycle is. unusual, and probably makes the job more complicated for the Fed", he said.

President Trump is preparing to slap import duties on a further $200 billion of Chinese goods, meaning that his sanctions would cover almost half of imports from the country.

But managing such trade-offs is well in the future and so far trade policy tensions have hardly made a dent in the economic outlook.

"I think that was a little overdone", said Ferdi Heynke, portfolio manager at Afrifocus Securities, referring to the stock's decline.

The Fed has been carefully and gradually raising rates over the past several years to keep inflation in check and to prevent the economy from overheating. "As he said he considers the Federal Reserve Board Chair Jerome Powell a very good man and that he is not interfering with Fed policy decisions". None appears to be particularly eager to loosen monetary policy.

Meanwhile, Trump also said he did not expect much progress from trade talks with China this week in Washington. Five of them vote on setting policy at each meeting with voting assignments rotated on an annual basis. For example, the current Federal Reserve policy is calling for relatively small increases in rates that have been spaced out over what is now almost a three-year period and these increases have been so modest that it can't really be said that they've had a major negative impact on economic growth.

He said the Fed was designed so that it would be accountable to policy makers and the public, but it was also created to be somewhat independent from jawboning from the White House.

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