Are the FEDS correct in raising the Interest rates?
“President Donald Trump continued to blast the Federal Reserve’s recent interest rate hikes in an interview Monday, days after complaining about Federal Reserve Chairman at a private GOP fundraiser.
Trump told Reuters that he was “not thrilled” by Powell’s decision to raise interest rates and would continue to criticize the Fed if interest rate hikes continued.
Trump said that during the recent spat of trade fights central banks in other countries have helped to cushion the economic impact, but not in the US.
“We’re negotiating very powerfully and strongly with other nations,” Trump said. “We’re going to win, but during this period of time I should be given some help by the Fed. The other countries are accommodated.”
The Fed has been gradually raising interest rates since the end of 2015, with five hikes coming under Trump. While economic theory (in the simplest terms) says that rate hikes slow the pace of economic growth, interest rates today remain historically low, and measures of credit growth show that access to loans is still generally easy.
Additionally, Trump’s tariffs on goods coming into the US are generally thought to be inflationary, driving up consumer prices. In the face of higher inflation the Fed typically increases interest rates.
The criticism comes after a private Republican fundraiser on Friday, during which Trump reportedly attacked Powell’s interest-rate hikes.
According to Bloomberg, Trump complained that Powell — the president’s own pick for the Fed’s top job — was raising interest rates instead of delaying rate hikes and keeping monetary policy loose.”
Review the News Clip given above and then answer the following questions:
- Are the FEDS correct in raising the Interest rates? Why or why not?
- What type of monetary policy is associated with such an action taken by the FEDS? Discuss the policy in short.
- Why do the Presidents not intervene in FEDS decisions? What is meant by “loose monetary policy”? Give examples to support your answer.