President Donald Trump, on Tuesday last week once again expressed his displeasure with the Federal Reserve. In an interview last week, Trump said that the Fed is hiking interest rates too fast.
At the same time, the President said that he didn’t want the economy to slow even a little bit. He said that there were no signs of inflation that could warrant a rate hike.
“I think we don’t have to go as fast,” the President said when asked about the Fed raising interest rates. The President said that he did not speak to the Federal Reserve Chair, Jerome Powell.
The Federal Reserve Bank hiked interest rates by 25 basis points at its meeting in September. It also raised the expectations for economic growth for this year and the next.
The move was widely criticized by the President who expressed concerns that the Fed was hiking rates while there was more that could be done with the money.
Trump is one of the first Presidents to directly talk about the Federal Reserve, undermining the institution’s independence. While the markets used to react to the comments from Trump, the reaction on Tuesday had an impact on the market’s pricing.
Trump’s comments come amid the U.S’ involvement in a trade war with most of its trading partners. China has been on the receiving end with the U.S. threatening to impose a blanket ban on Chinese imports by January 2019 if China does not concede in giving the U.S. trade concessions.
Although the U.S. economy has been on a firm footing, logging a 4.2% quarterly GDP growth rate, there are concerns among some circles.
The International Monetary Fund (IMF) most recently issued dire warnings about a slowdown in the economy due to the escalating tensions.
The U.S. is also in a confrontational mode with the rest of its trading partners on a variety of issues. For one, the U.S. withdrew from the Iran Nuclear Accord. However, the other remaining parties to the deal including Russia, China, and the Eurozone have reiterated their commitment to the nuclear accord.
There have been preliminary talks about the Eurozone looking for alternate payment systems in order to circumvent the USD transactions.
Meanwhile, the U.S. managed to re-negotiate the NAFTA deal with Mexico. Canada was also seen joining the trade deal at the last minute. Although details are yet to emerge, Canada is said to have given greater access to the U.S. to its local dairy markets.
So far, the U.S. economy has been gaining momentum alongside the labor market falling to fresh lows amid strong growth. The U.S. unemployment rate was seen at 3.7% in September marking a fresh 49 year low in history.
This has sparked concerns that inflation pressures could start to build up very quickly. Consumer prices in the United States are currently near the 2.0% inflation target. With a tighter labor market, inflation is expected to overshoot the Fed’s target.
This fear has led to the market’s pricing in a faster pace of rate hikes. The Federal Reserve on its part has indicated another rate hike in December this year followed by four rate hikes next year.
The Fed President Jerome Powell, in a speech recently also expressed optimism in the U.S. economy. He expects the growth to remain “remarkable” and expects the economy to strengthen further in the coming quarters.
Reflecting this view, the U.S. 10-year Treasury yields rose to the highest level since 2011, briefly touching 1.043% before easing back slightly.
The markets currently wait for the third quarter GDP reports to be released in a few weeks’ time. Expectations call for the U.S. economy to maintain a +4% GDP growth rate for the three months ending September 2018.