Federal Reserve in Trump's line of fire but unlikely to change course

Chart Source Board of Governors of the Federal Reserve System

Chart Source Board of Governors of the Federal Reserve System

The Bank of England governor and the head of the International Monetary Fund praised the abilities of Federal Reserve Chairman Jerome Powell on Thursday, after U.S. President Donald Trump said the Fed had "gone crazy" by raising interest rates.

"No I think the Fed is making a mistake", he said.

"Actually it's a correction that we've been waiting for for a long time, but I really disagree with what the Fed is doing", Trump told reporters before a political rally in Pennsylvania.

Trump's latest attack on the USA central bank appeared to blame the Federal Reserve for a stock rout that market analysts mostly attributed to fresh concern about his trade war with China.

"The fundamentals and future of the US economy remain incredibly strong", Sanders said in a statement.

While campaigning in 2016, Trump had been highly critical of the Fed, contending that under Chair Janet Yellen, the Fed was keeping rates abnormally low to try to help Democrats.

Traditionally, presidents have avoided publicly commenting on Fed policy. "They are independent; they're going to do what they're going to do". He took over just eight months ago, largely continuing policies set in motion by Yellen. Presidents for more than two decades had avoided public comments on the Fed's interest-rate policies as a way of demonstrating respect for the institution's independence.

Also on Tuesday, Trump had criticized the Fed, saying he does not think it's necessary to raise rates so fast. US stocks opened lower on Thursday but seesawed between losses of as much as a percentage point and small gains. A full term on the seven-member Fed board lasts 14 years - a lengthy period that was seen as liberating Fed officials from any fear that their rate decisions might cost their jobs. He also mentioned the Fed is monitoring other risks - "the strength of economies overseas, the effects of ongoing trade disputes, and financial stability issues" - all of which, if they prove real, would suggest less tightening rather than more as a monetary policy response. In a late night phone call Wednesday with Fox News, Trump complained: "The Fed is going wild. They're so tight. I think the Fed has gone insane", Trump said. "The problem in my opinion is Treasuries and the Fed".

The sell-off came a day after the International Monetary Fund said the world economy is plateauing and cut its growth forecast for the first time in more than two years, blaming escalating trade tensions and stresses in emerging markets.

"I wouldn't associate Jay Powell with craziness", Managing Director Christine Lagarde told CNBC in an interview. The central bank is widely expected to boost rates again in December.

White House press secretary Sarah Sanders downplayed Wednesday's steep sell-off on Wall Street, noting the US economy remains in good shape. "President Trump's economic policies are the reasons for these historic successes and they have created a solid base for continued growth". Interest rates take an upward push as the greenback gets stronger and people are certainly not pleased by that, the president said.

The policy could eventually bite harder into parts of the economy that are both sensitive to interest rates and connected to politically important industries, such as autos and home construction and sales.

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