Tuesday, 20 November, 2018

Fed Vice Chair Clarida: 'Some Further' Rate Increases Warranted

Trump Says He ‘Maybe’ Regrets Picking Fed's Powell WSJ Reports Trump Says He ‘Maybe’ Regrets Picking Fed's Powell WSJ ReportsMore
| 28 October, 2018, 07:45

While till recently American presidents have refrained from commenting on federal policy, Mr. Trump was quick to say during an interview with Wall Street Journal that "Fed is the biggest risk to United States economy as they are raising interest rates very sharply and it appears as if Jerome Powell is very happy about it".

But the president has lately expressed frustration with the Fed's gradual interest rate increases, created to slow down the economy and prevent inflation from taking off - standard macroeconomic steps that Trump insists are undercutting his expansionary fiscal moves.

The comments were in response to questions from economist Adam Posen, a former policymaker at the Bank of England, who said Trump's criticisms are "pretty unprecedented for the last couple of decades from a USA president".

President Trump told the Wall Street Journal it is too early to tell whether he made a mistake in appointing Jerome Powell, a lawyer by trade and former Federal Open Market Committee (FOMC) voting member, as chair of the FOMC and Federal Reserve at the beginning of 2018.

He pointed out how the central bank kept interest rates at zero during the last administration, but they have raised the rate three times this year alone.

Speaking of the monetary policy, Clarida said he believed the Fed's monetary policy "remains accommodative".

The target range for the federal funds rate, now at 2 percent to 2.25 percent, is nevertheless still low by historical standards.


The Fed in recent years has kept rates low in part to guard against a drop in inflation that could prove damaging to future economic growth. Trump blamed the nation's central bank for the latest market turmoil, saying the "Fed has gone insane".

However, Clarida said: "We have a very clear mandate, and the data shows up every month in terms of inflation and unemployment, and our job is to sustain what is a very healthy and robust economy". They explain the interest rate was kept at historic lows under Obama to help the economy recover from the Great Recession, which began about a decade ago. Trump had also attacked the bank last week when the share prices of U.S. plunged suddenly.

The political pressure "will in no way be a consideration as far as I'm concerned", Clarida said.

Inflation has increased about two percent this year, in line with the Fed's target, but economists fear growing demand, combined with the tariffs and a labor shortage could ignite price increases.

Snow covered grounds of the US Federal Reserve in Washington January 26, 2016. With regard to unemployment, the Fed expects next year to see it at 3.5-percent, the lowest it's been at any point since 1969.

Increases in the federal funds rate have a ripple effect on the economy and the stock market.

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