Federal Reserve raises interest rates despite pressure from Trump

Fed said rates will rise a quarter of a percentage point to 2.25% to 2.5% but it is carefully watching ‘event risks’, including Brexit

The US Federal Reserve raised interest rates again on Wednesday despite intense, and unprecedented, pressure from Donald Trump to leave rates unchanged.

After a two-day meeting, the central bank announced rates would rise a quarter of a percentage point, to a range of 2.25% to 2.5%, the ninth such move since late 2015. The rate rise further signals the Fed’s confidence in the US economy.

The closely watched Fed fund rates is used to benchmark interest rates worldwide, and the Fed’s move is parsed by investors worldwide for signals about the strength of the US economy.

The Dow Jones industrial average dropped 70 points after the announcement to finish the day down 1.49%, while the S&P 500 lost 39.2 points, or 1.54%. US stocks are on course for their biggest December decline since 1931, the depths of the Great Depression.

The selling spread into Asian trade on Thursday, where the Nikkei in Tokyo was down 2.3% and the Hong Kong market was off 1.1%. In China, the Shanghai Composite was down 0.8%.

At a press conference, the Fed chairman, Jerome Powell, said the US economy remained strong overall but added that some “cross-currents” had emerged.

“Despite this robust economic backdrop and our expectation for healthy growth, we have seen developments that may signal some softening,” said Powell, signaling that the pace of rate increases may slow next year.

Powell said that although US growth remained strong, globally economic growth had become more patchy. He said the Fed was carefully watching “event risks” – including Brexit – for their potential impact on the US. But he added US financial institutions are well prepared for any outcome of the UK’s exit from the EU and that the final decision should not have major implications for the US.

“Honestly, it shouldn’t have major implications for the United States, but there’s a lot of uncertainty because it’s not something that’s happened before,” he said.

Trump has waged a public campaign to halt further rate rises, a highly unusual move for a president, calling the increases “crazy” and “foolish” and arguing the Fed’s policy was “the “biggest threat” to the US economy, larger than the administration’s trade dispute with China.

Sign up for the new US morning briefing

Last month Trump told the Washington Post he was “not even a little bit happy” with his selection of Powell to chair the Fed. On Tuesday, as the Fed was meeting, Trump pressed the Fed to hold off from “making another mistake”.

He pointed to a Wall Street Journal editorial that called for a pause in rate hikes, arguing that US growth may be slowing, Trump’s tariff disputes have dampened trade and sales of homes and cars, both highly impacted by rate rises, have dipped.

I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!

— Donald J. Trump (@realDonaldTrump) December 18, 2018

In spite of Trump’s criticism the Fed voted again for another small increase in rates. All four of the Fed’s rate increases this year have been approved on a unanimous vote.

The White House press secretary, Sarah Sanders, defended Trump’s criticism of the Fed on Tuesday. “The president is stating his opinion, which he is perfectly within his right to do,” said Sanders. “He has been very clear about what his opinion is while at the same time he understands that the Fed is an independent agency. That doesn’t take away the president’s right to express his opinion on a particular matter.”

Powell defended the Fed’s independence. “Political considerations play no role whatsoever” in the Fed’s decision, Powell said, adding that the independence of the Fed is “essential” if the central bank is to do its job properly. Powell said the Fed based its decisions on the economic data it gathered and “nothing will cause us to deviate from that”.

The Fed is charged with helping to keep unemployment low and controlling inflation. The latest rise comes as the US unemployment rate has dropped to levels unseen since 1969 and inflation has remained low. However, Trump’s trade disputes and the threat of a government shutdown over funding his proposed border wall with Mexico have rattled investors and stock markets have been highly volatile.

Powell said the Fed was watching the recent volatility in the stock markets but downplayed their importance. “We follow markets really carefully but remember, from a macro-economic standpoint, no one market is the single dominant indicator,” he said.


Dominic Rushe in New York

The GuardianTramp

Related Content

Article image
Trump raises pressure on Federal Reserve to cut interest rates
President launches new attack on Jerome Powell, the man he picked to run US central bank

Larry Elliott Economics editor

21, Aug, 2019 @5:52 PM

Article image
Federal Reserve raises US interest rates again amid trade relations fears
Fed describes jobs market as ‘strong’ but chair Jay Powell acknowledges mounting concern among US executives over trade

Dominic Rushe in New York

13, Jun, 2018 @7:27 PM

Article image
US Federal Reserve raises short-term interest rates again
Move is the eighth since 2015 as the central bank aims to unwind years of historically low rates

Dominic Rushe in New York

26, Sep, 2018 @6:38 PM

Article image
US Federal Reserve raises interest rates for second time since 2008 crisis
Fed chairwoman Janet Yellen announced a 0.25% increase in the benchmark rate to 0.50-0.75%, and predicted three further rates increase in 2017

Rupert Neate in New York

14, Dec, 2016 @8:08 PM

Article image
Q&A: What will happen if the Federal Reserve raises US interest rates?
Janet Yellen, the Fed chair who has been criticised by Donald Trump, is set to raise rates for third time since financial crash

Phillip Inman

14, Mar, 2017 @7:08 PM

Article image
US Federal Reserve indicates increase in interest rates as inflation rises
Fed chair Jerome Powell said the central bank would make a decision on the rate raise in its March meeting

Dominic Rushe in New York

26, Jan, 2022 @9:11 PM

Article image
Federal Reserve cuts US interest rates for third time this year
But central bank’s reluctance to further reduce borrowing costs could rile Donald Trump

Larry Elliott

30, Oct, 2019 @7:55 PM

Article image
Federal Reserve announces biggest interest rate hike since 1994
Fed confirms 0.75 percentage-point increase as Americans across country hit hard by rising prices and shortages of key items

Dominic Rushe in New York

15, Jun, 2022 @10:33 PM

Article image
Tough action on interest rates in the US. But how rattled is the US Federal Reserve?
Wall Street braces for rises in borrowing costs in July and September as 8.6% inflation spurs on central bank

Larry Elliott Economics editor

15, Jun, 2022 @7:00 PM

Article image
Janet Yellen raises interest rates in final act as Federal Reserve chair
Outgoing Fed chief’s ‘final pull of interest rate lever’ comes amid forecast of economic growth, news that will be cheered by Trump administration

Dominic Rushe

13, Dec, 2017 @8:30 PM