Published: Fri, October 19, 2018
Markets | By Otis Pena

Federal Reserve unanimously backed higher interest rates, despite Trump

Federal Reserve unanimously backed higher interest rates, despite Trump

The Fed also forecast an additional three rate increases in 2019 and one in 2020.

President Donald Trump laid the blame firmly at the Fed's door - describing it as "crazy" for raising rates, an action which tends to strengthen the dollar.

Participants in the FOMC rate-setting committee "generally anticipated that further gradual increases" in short-term borrowing costs would be consistent with the kind of continued economic expansion, labor market strength, and firm inflation that most anticipated, the minutes showed. The next rate rise could come as soon as December.

Randal Quarles, who rarely discusses monetary policy, painted a somewhat more optimistic picture than his colleagues on the economy's longer-term capacity and said he favoured a bit more dovish path than most others in the US central banking system.

Wall Street, which had struggled through much of the day, closed slightly lower, with stocks paring losses after the minutes' release.

But some Fed members warned that instability in emerging economies - many of which are heavily indebted and vulnerable when United States rates rise - could "spread more broadly through the global economy and financial markets".

Donald Trump vs The Federal Reserve

Though the minutes did not refer to any of Trump's criticism, its message of further rate increases suggests that policymakers are not fazed by it. The U.S. economy is still "in a good spot", he said, and there are reasons to be optimistic about the economy's potential capacity.

Mike Loewengart, vice president of investment strategy at E*Trade, said: "For now, the Fed has made it clear that they are focused on their agenda despite rising presidential pressure on their rate decisions".

Last week, in a series of comments, Trump called the Fed "out of control", although he said in response to a question that he would not seek to oust Powell as chairman.

Since the Treasury's last currency report was issued on April 13, the yuan has fallen by more than 9 per cent against the U.S. dollar.

They also noted that some businesses said they were investing less in the energy sector due to the imposition of import tariffs on steel and aluminum, part of an array of trade policy conflicts the Trump administration has pursued. Auto loan rates are at a nine-year high, and 30-year fixed mortgage rates recently climbed to their highest level in seven years.

The Fed has raised interest rates three times this year as it seeks to prevent a vibrant economy from overheating.

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