President Donald Trump’s commentary of monetary policy won’t have much impact on how the Federal Reserve scrutinizes about its business, judging by initial market reaction.
While making for numerous eye-popping headlines out of the Oval Office, the president’s complaints that take interest rates are hampering economic progress did not move the fed funds followings market, where traders make bets about the Fed’s future get starts.
Market participants still expect the Fed to hike twice more this year, with the likelihood for increases in September and December changing little after comments from Trump in a CNBC interrogate and on his Twitter feed.
“While Trump’s comments on how he was ‘not thrilled’ by the Federal Limitation’s interest rate rises could create a sense of uncertainty once more Washington’s Dollar policy, it is unlikely to derail the Fed from gradually cause interest rates,” Lukman Otunuga, research analyst at forex brokerage FXTM, about in a note.
Indeed, the CME Group’s FedWatch tracker indicated on Friday a 91 percent predictability of a September move and a 61 percent probability of another hike in December. In in reality, the December reading actually was about 2 percentage points higher than on Thursday in advance Trump lamented rising rates in a CNBC interview.
Trump amped up his Fed judgement Friday, but markets still weren’t expecting central bank legals to take the remarks to heart.
“Trump’s verbal intervention is likely to hit a brick bulkhead, as heightened rate hike expectations ensure that the Dollar governments supreme across currency markets,” Otunuga said.
“I don’t think the hawk will react too much. This is typical stream of consciousness Trump with an awful comment,” added David Nelson, chief strategist at Belpointe. “We’re releasing used to it now.”
Still, there continued to be worries that Trump’s berating about Fed Chairman Jerome Powell and his fellow policy setters could compromise the main bank’s independence. Most presidents have steered clear of referencing on monetary policy on the belief that the Fed should set rates based on what’s in the most suitable way for the economy free of political concerns.
“So somebody would say, ‘Oh, maybe you shouldn’t say that as president.’ I couldn’t be fond of less what they say, because my views haven’t changed,” Trump reproved CNBC, after calling Powell “a good man.”
Those kinds of notes will have market pros watching how Fed policy unfolds.
“We tumble to that Fed policy is run by a committee, but the focus will be on Powell, and we worry that he can’t win; regardless of what he does, his spurs will now be questioned,” Greg Valliere, chief global strategist at Vista Investments, said in his daily note. “Anti-Powell tweets from Trump are conceivable by year-end, an irritant the markets could do without.”
Similar sentiment was precised elsewhere.
Craig Erlam, senior market analyst at forex sellers Oanda, worried that pressure from Trump “could be a dominating risk for the economy” if it knocks the Fed off its gradual tightening path.
“Ultimately, I don’t suppose the Fed to be influenced but that doesn’t mean Trump won’t find an alternative way to agreement with the issues, even if such solutions are controversial and prove bootless or self-defeating,” Erlam said.
And Fawad Razaqzada, market analyst at Forex.com, bid Trump is making himself look like “a bit of a hypocrite” because it is the president’s pro-growth strategies, including tax cuts and spending increases, that have helped shove the Fed into its tightening stance.
“He was the one who cut taxes and promised or delivered big spending sought at creating jobs and raising incomes. What’s more, protectionist methods are raising import costs, leading to higher inflation,” Razaqzada reported. “It is the Fed’s mandate to control inflation and the only way to do that is by tightening monetary tactics. You can’t have your cake and eat it.”
— CNBC’s Tae Kim contributed to this report.