U.S. interest rate rises are necessary, says International Monetary Fund chief

Mae Love
October 12, 2018

US President Donald Trump has renewed his attacks on the central bank, the Federal Reserve, calling it "out of control" and "far too stringent". That is a good thing.

Fed Chair Jerome Powell, whom Trump named to lead the central bank, has repeatedly brushed off the comments saying officials do not pay attention to politics.

Trump himself later told reporters he would not try to oust Powell, Trump's handpicked successor to former Fed chair Janet Yellen, and a well-regarded insider in moderate Republican circles.

Analysts attribute some of the recent share price declines to sales by investors anxious that trade tensions will hurt growth, while trade tariffs and rising interest rates raise costs for businesses.

US President Donald Trump warned on Thursday there is "a lot more" he could do to hurt China's economy.

"I wonder today whether Trump really has some buyer's remorse with respect to selecting Powell as his Fed chairman, because that was a odd pick", Moore said. The president is not dictating policy to the Fed. "I think the Fed has gone insane", he charged.

"I don't like it", Trump said Tuesday at the White House, referring to the Fed's rate hikes, the most recent of which was September 26.

Mr Trump also renewed his criticism of the United States central bank.

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It also assumes that Trump imposes a 25 percent tariff on imported cars and auto parts. That initiative includes China, India and Japan, but not the United States.

The growing trade war prompted the International Monetary Fund on Tuesday to cut its global economic growth forecasts for 2018 and 2019.

Trump began imposing tariffs on hundreds of billions of dollars worth of Chinese imports in January 2018, with Beijing retaliating by slapping tariffs on USA goods in response. "The problem in my opinion is the Fed, " he added.

By historic standards, interest rates remain low.

Gradual rate increases - moving the overnight federal funds rate over the next year and a half or so from between 2 and 2.5 percent now to around 3.4 percent - would slow the economy a bit, but keep inflation in check during a record-setting era of recession-free growth spanning the Obama years and Trump's first term.

But the Federal Reserve has been gradually raising its interest rates since 2015, bringing the target for its benchmark rate to a range of 2% to 2.25% last month.

The market is reacting to a "triple whammy" of rising interest rates, higher oil prices and a stronger dollar, according to Yardeni Research.

Stocks have been under pressure since the yield on 10-year US Treasury bonds jumped above three percent last week, a sudden move that raised fears of an overheating economy, speeding inflation and more aggressive Federal Reserve interest rate increases.

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