Federal Reserve Raises Interest Rates Another Quarter Point
Today, as expected, the Federal Open Market Committee voted to raise interest rates by 0.25%, bringing the new benchmark interest rate to a range of 2.25%-2.5%. This is the fourth time the Federal Reserve has increased rates this year as bankers voted unanimously with Chairman Jerome Powell to make the adjustment. Of course, while most observers all but assumed this hike was coming, the decision is one that President Trump will surely not be pleased with.
On Monday (two days before the meeting), the President fired off a tweet aimed at the Fed urging them to reconsider plans. He wrote, “It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!” He followed that up on Tuesday, saying “I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!” Trump is likely referring to a piece titled “Time for a Fed Pause” penned by the Journal’s Editorial Board that argued “inflation and other economic signals justify interest-rate caution.”
It would also seem that President Trump wasn’t the only one displeased with today’s decision as market reaction has been swift. Although the Dow Jones Industrial Average had risen by as much as 277 points since opening, news of the rate hikes effectively tanked it. As of this writing the Dow is down more than 350 points for the day.
Of course, as even the WSJ editorial that the President mentioned in his tweet acknowledge, the Fed and Chairman Powell have been put in a rather difficult position. On the one hand, if they were to avoid raising rates, it would look as though they were bowing to Trump’s demands. Meanwhile staying the course and raising rates might look spiteful — especially if the plans were to backfire down the line. As Advisors Asset Management Chief Investment Strategist Matt Lloyd eloquently told MarketWatch, “The Fed is damned if they do, damned if they don’t.”
Despite warnings from the President and pressure from the markets, those inside the Fed meeting remained firm in their position. As CNN Money reports, the Federal Open Market Committee said in a statement, “The labor market has continued to strengthen and the economic activity has been rising at a strong rate. Jobs have been strong.” However they did signal that they might instate fewer rate hikes next year than originally projected.
The fervor surrounding this week’s Federal Open Market Committee meeting may provide a clue as to why previous presidents have largely stayed away from commenting on Federal Reserve actions. Alas, President Trump has shown himself to be very vocal about what he believes the Fed ought to be and ought not to be doing. Meanwhile the dovish signs the Committee addresses in their future forecast may have partially been meant to appease investors, it doesn’t seem to have worked at this point. If nothing else, expect some more reactions and tweets from the White House on this topic as we head toward 2019.