Published: Wed, August 22, 2018
Markets | By Otis Pena

U.S. Government Bonds Fall as Investors Weigh Trump’s Fed Rate Comments

U.S. Government Bonds Fall as Investors Weigh Trump’s Fed Rate Comments

The president nominated Powell previous year to replace former Fed Chair Janet Yellen.

The Fed has raised rates twice this year and is expected to do so again next month.

"Most Fed-watchers are of the view that Powell is emphasising the need for financial stability and with a positive United States economic backdrop is obliged to tighten policy".

Trump, who spooked investors in July when he criticized the USA central bank's monetary policy tightening, told Reuters in an interview that he believed the Fed should be more accommodating.

President Trump continued on Tuesday to comment on Fed policy decision.

Political advisers to Mr. Trump have lamented that rising rates could stifle job and general economic growth, leading to election day issues for the President during his 2020 re-election campaign. While economic theory (in the simplest terms) says that rate hikes slow the pace of economic growth, interest rates today remain historically low, and measures of credit growth show that access to loans is still generally easy. Trump told Reuters, referencing Powell.

The dollar, whose momentum stalled at the end of last week, was hit with another blow following comments related to interest rates and currency manipulation from President Trump.

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The National Weather Service predicts "widespread smoke" will turn to "widespread haze" by Wednesday as onshore winds return. The entire province of Manitoba is under somewhat hazy skies and Environment Canada has issued an air quality alert .

"I'm very concerned, especially given this very divisive and highly politicised environment, that bringing the Fed into that environment could complicate the Fed's communications [to the public], its support in the Congress and among the American people", said Donald L Kohn, who spent 40 years at the Fed and retired as its vice chairman in 2010.

A Fed spokesperson declined to comment.

Presidents usually avoid criticizing the central bank, which is created to be independent from political interference.

"What Trump is anxious about is that the Fed has, in my own words, growth phobia", Stephen Moore, a Republican economic commentator who advised Mr. Trump during the 2016 presidential campaign, told the Wall Street Journal. Economists said the pressure helped create the stagflationary economy of the 1970s.

Powell last month said in an interview that the Fed has a "long tradition" of independence from political concerns, and that no one in the Trump administration had said anything to him that gave him concerns on that front.

"Of course the president respects the independence of the Fed", the White House spokeswoman Lindsay Walters told Business Insider at the time. According to Bloomberg, Trump said he expected Powell to be what the news service said was a "cheap-money Fed chairman".

President Donald Trump is, famously, not a big believer in institutional or even constitutional constraints on his power and his prerogatives.

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