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Trump advises Fed not to consider interest rate hike

Trump advises Fed not to consider interest rate hike

President Donald Trump on December 18 urged the Federal Reserve, the USA central bank, to not make "another mistake" by raising interest rates.

"It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike", Trump tweeted.

In a tweet on Tuesday, Trump said that the Federal Reserve should "take the Victory" of a strong USA dollar while "the outside world is blowing up around us", instead of raising interest rates.

While the USA economy looks strong right now, there are signs of a potential slowdown.

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.

Trump urged the Fed to ignore economic data and "feel the market".

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"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. Trump argued that he was still respecting the Federal Reserve's political independence because he wasn't voicing his advice for them in his role as president. What is the "normal" interest rate at this point? She said the threat of a trade war and slower growth by China is also weighing on investors.

Trump has loudly and frequently blasted the central bank and Fed Chairman Jerome Powell for raising borrowing costs this year, especially as volatility has rocked the stock market and US Treasury yields have begun to signal a possible recession ahead. On Wednesday, the Fed is widely expected to scale back its forecast to just two rate increases for next year.

"I just don't think of it", said Mary Daly, president of the San Francisco Fed, in an appearance last week on PBS NewsHour.

Even though the Fed has shed over $370 billion in assets since starting the great unwind, the balance sheet still sits at a gargantuan $4.0 trillion. "There are no politics at the Fed". Investors will be looking for signs that the central bank realizes that the economy isn't going to grow as fast as it had thought, but that it's not going to slow too much-and that it realizes it is coming close to tightening the economy into a recession. USA presidents have typically refrained from encroaching on the independence of the Fed. "The Fed's governors might have thought in September that another increase would be needed by year's end, but they should acknowledge that the market beat them to it".

The central bank's unprecedented strategy of unwinding its balance sheet is quickly coming into focus as anxious investors urge the Fed to pause its rate hikes.

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