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Fed raises rates in defiance of Trump

BBC   

20 December, 2018 08:45 AM



Fed raises rates in defiance of Trump

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The Federal Reserve has raised interest rates again, defying warnings from Donald Trump against the move.

Officials at the US central bank voted to lift the Fed's key interest rate by 0.25%, to a target range of 2.25%-2.5%.

But they also said future increases could come at a slower pace amid concerns about global growth.

It comes after the US president on Tuesday warned the Fed against making "yet another mistake" in raising rates, urging it instead to "feel the market".

He also urged the bank not to wind down a multi-billion dollar stimulus programme brought in after the financial crisis.
Mr Trump - who appointed the Fed's chairman, Jerome Powell - has repeatedly blamed the central bank for unsettled markets and dismissed analysts who cite other factors, such as rising trade tariffs.

But his remarks have put pressure on the Fed, as presidents generally avoid criticising the bank publicly, for fear of politicising the institution.

At a press conference on Wednesday, Mr Powell defended the Fed's independence, saying that political pressure played "no role whatsoever" in its discussions or decisions.

He added that the Fed had no plans to change its ongoing reduction of its portfolio of Treasuries and mortgage-backed securities.

Fewer hikes next year
The bank has been gradually raising the benchmark rate since 2015, moving the US away from the ultra-low rates put in place during the financial crisis to spur economic activity.

Wednesday's decision, which was widely expected, marked the ninth increase since 2015 and the fourth this year.

However, the moves have made borrowing more expensive, contributing to slowdowns in some sectors, such as housing.

And with economic growth expected to slow, some worry that further increases risk stifling economic activity.

On Wednesday, officials did cut their forecasts for economic growth in 2019 to 2.3%, down from the 2.5% they anticipated in September.

And estimates released by the bank showed most Fed members expect two rate increases in 2019 - not three, as previously forecast.

It follows a downturn in US financial markets and concerns about slowing growth in the US and abroad.

However, Mr Powell said the strength of the US economy - which is expected to grow about 3% this year - justified another rate rise, despite recent "cross currents" that have weakened the outlook.

"We think this move was appropriate for what is a very healthy economy," he said. "Policy at this point does not need to be accommodative."

In its official statement, the Fed also said increases to its benchmark rate would help the US economy sustain its expansion, keeping the unemployment rate low and inflation near 2%.


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