U.S. Retail Investors Are on Trump’s Side in Fight With Fed

US President Donald Trump has stepped up his pressure on the Federal Reserve by warning the central bank against making "yet another mistake".

In a tweet on Tuesday, Trump said that the Federal Reserve should "take the Victory" of a strong USA dollar while "the outside world is blowing up around us", instead of raising interest rates.

Given firmness in the USA economy and the labor market, the central bank's policy-setting Federal Open Market Committee is expected to raise rates after the meeting, which would be a fourth increase this year.

In an interview with Reuters last week, Trump said he needed the flexibility of lower interest rates to support the broader USA economy as he fights a growing trade battle against China, and potentially other countries.

"The reason why the Fed shouldn't raise interest rates on Wednesday is not because the economy's slowing down, but because the economy's growing without inflation", Navarro told CNBC television. In an earlier tweet in July, Trump said, "the United States should not be penalized because we are doing so well".

But some Wall Street economists and analysts said that they did not see a major shift in Fed's tightening monetary policy. The criticism breaks from the tradition of previous U.S. presidents, who would avoid weighing in on monetary policy out of respect for the Fed's independence.

Trump's tweets about monetary policy have intensified as USA stocks tumble amid signs the world's largest economy may be moderating. She said the threat of a trade war and slower growth by China is also weighing on investors. Similar cycles of rate increases previously have resulted in stock-market crashes or economic recessions.

"The only question is whether a rebound will begin ahead of the Fed decision tomorrow, or whether another quick flush is due before tomorrow's widely-expected rate hike".

"Now, I'm just saying the same thing that I would have said as a private citizen", he said during the interview.

Some argue that the only impact Trump is having on the Fed is to make the central bank more likely to hike since the Fed doesn't want to appear to have lost its independence from politics.

Trump has repeatedly broken with norms of recent decades, hammering the central bank this year over its moves away from the zero interest rate policy implemented during the global financial crisis.

Powell himself could provide clarity in his news conference if he indicates where he thinks the "neutral rate" is. But while economists don't like Trump's Fed bashing, there are some who are starting to agree with the president that it's time for the Fed to hit pause on the rate hikes.

  • David Armstrong