President Donald Trump weighed into a simmering careful thought over Federal Reserve interest rate policy, saying Friday that the central bank needs to end its “crackpot” tightening moves.
In a series of tweets, the president addressed an unusual controversy stemming from a speech Thursday that New York Fed President John Williams gave.
Market participants initially took Williams’ remarks as indicative that the central bank was prepared to cut rates aggressively, by it is possible that a half a percentage point. But a Fed spokesman soon walked back the comments, causing confusion over where practice is headed.
Trump said he liked Williams’ “first statement much better than his second.” He yelled on the Fed to “stop with the crazy quantitative tightening” and not to “blow it” by halting “unparalleled” growth.
The president, though, mischaracterized Williams’ opinions. Williams never said in the speech that the Fed raised “far too fast & too early,” as Trump suggested. Rather, Williams predicted the Fed, when confronted with an economic downturn and interest rates close to zero, should cut quickly and aggressively.
Trump has hanker been a Fed critic, saying the central bank’s rate hikes since December 2015, along with its feats to reduce bond holdings on its balance sheet, i.e. “quantitative tightening,” have constrained economic growth. The Fed already has announced foresees to halt the balance sheet roll-off, likely in September.
With fears building over a bevy of issues involving a global economic slowdown, tariffs, Brexit, debt ceiling negotiations and a vexing lack of inflationary pressures, markets thoroughly expect the Fed to announce a rate cut at its July 30-31 meeting.
In his speech, Williams said that when faced with “fiscal distress,” the Fed should “act quickly” and “keep interest rates lower for longer.” Coming along with similarly dovish elucidations from Fed Vice Chairman Richard Clarida and St. Louis Fed President James Bullard, markets immediately started consequence in an even sharper reduction from the Fed than the typical quarter-point moves and looked for a possible half-point cut.
Williams’ bit, however, followed with a statement saying that his comments were only in regard to an academic study and shouldn’t be construed as a inclination policy intention.
Traders on Friday were assigning a 41% chance of a half-point cut, according to the CME’s FedWatch tracker.