Friday, April 5, 2019

Fed Officials Resist Rate-Cut Idea Pushed by Trump's Advisers

This Bloomberg article by Christopher Condon details the reactions of Federal Reserve officials to the president’s urging of cutting interest rates. While the Fed is currently holding the current rate given the global economic slowdown of the past few months, their patient approach has been under scrutiny by some. President Trump’s rationale of imposing an expansionary monetary policy is a response to the US’s recent slowing in growth and is meant to encourage consumer spending and business investments to prolong expansion for as long as possible. The Fed’s reasoning within this article is vague, but their overall intent for raising interest rates is related to our low inflation and trade deficit. By raising interest rates through open market operations, the Fed is looking to make US investments more appealing to foreign investors by offering better rates of return. Nevertheless, they intend to hold rates steady for the foreseeable future, as mentioned by several previous blog posts. Overall, Federal Reserve officials are content with what their current course of action is, despite presidential pushback.
    Personally, I think the Fed’s determination in keeping a patient approach is a somewhat comforting notion. Recent overall interest rates are historically still relatively low. In order for the Fed to maintain any effectiveness of monetary policy they implement, rates have to increase at some point in order to be decreased in the future for expansionary action. Further lowering of already modest interest rates appears to be a futile attempt at furthering US growth.


4 comments:

Bridget R said...

I too agree with you Madison, that the Federal Reserve officials should be against efforts to cut interest rates. They appear to believe in a more positive outlook for the U.S. in the future, which contributes towards their reasoning for the likelihood that interest rates will rise along with the motives you mentioned. The article also stated that there could be a “prolonged pause” which could be a third potential possibility for interest rates and with the President voicing opposition to their increase, some might consider this a viable result.

Greg Margevicius said...

I'd agree with both Madison and Bridget that the Federal Reserve should be skeptical of cutting rates just yet. Potentially in about 18 months it may be appropriate to cut rates. However with inflation at just 1.5% it would seem that there is no rush to cut rates to "slay the inflation dragon" as Former Fed Chair Paul Volker would say. However I would agree that in the long run that rates need to go up as they still remain near all time lows. As regards to Presidential push back, it is not surprising that politicians want to short term growth to sacrifice for long term stability in the economy. This President is not much different in that regard, even if he wants it on a Bigly scale.

Anonymous said...

Interesting article, i agree that cutting rates right now is not the right decision since inflation is still below the feds target rate of 2%. As the article stated i see why they might want to raise rates, the discount rate has been very low for quite a while and is making foreign investment hard to come by. all in all though i think the fed is playing it smart by not jumping the gun and raising rates to quickly.

Aidan O'Rourke said...

With where interest rates are currently standing I don't think the Fed will be able to really justify lowering them. We have gone ten years without a recession so one is definitely due but how soon is hard to determine. If the Fed wants their monetary policy to be effective they are going to have to raise rates in the near future. My concern would be that even if they do raise rates soon, will the economy react negatively and force the Fed to lower them again?