Former US Fed leaders call for independent central bank

Jeannie Matthews
August 11, 2019

Perhaps the main reason for the Fed to cut the interest rate is to prevent global economic downturn in the backdrop of the US-China trade war.

His tactics to rectify that have included slapping billions of dollars of tariffs on Chinese imports and threatening even more extreme measures, but on Wednesday he blamed the Federal Reserve's interest rate policy for holding the US economy back.

"We have the greatest the world, there is nobody even close, but unfortunately the same can not be said of our Federal Reserve", Trump tweeted, adding that "substantial Fed cuts" would make it possible for American companies "to win against any competition".

"We worry about an adverse feedback loop in which the Fed eases and things get better: financial markets, the economy and so on".

White House trade adviser Peter Navarro on Monday called on the Federal Reserve to cut key rates by three-quarters of a point to one point by the end of 2019 to bring USA rates in line with others.

Fresh turmoil this week between the United States and China only raised the prospect the Fed may have to cut rates even more this year to avoid a collision course that could deeply damage the world economy. But that messaging was before Trump made a fresh tariff threat and China allowed its currency to weaken, prompting Treasury Secretary Steven Mnuchin to officially label the country a currencymanipulator at the direction of the President.

"Our problem is not China". Yet despite 16.6% year-to-date gains for US stocks, GDP growth exceeding expectations at 2.1% in the second quarter and interest rates well below previous bull market peaks, the Fed opted to cut rates in July for the first time since 2008.

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But taking economic growth, employment and inflation into consideration, the Fed could have waited for some time before cutting the interest rate.

First, the Fed is more anxious about the negative impact of the Sino-US trade war and US-European Union trade frictions on the US economy, because any major disruption in the global trade chain can greatly undermine the US economy.

Wall Street is already expecting three more interest rate cuts, in September, December and January.

Trump has even reportedly discussed an attempt to remove Powell from his position, raising questions about the central bank's independence.

On Huawei, he said "we're not going to be doing business with Huawei" but that could change if there is a US-China trade deal.

"This then feeds through into consumer sentiment and spending more broadly in the economy with recession risks mounting".

Trump's press for a weaker dollar comes as a so-called currency war has broken out globally as other nations also seek to weaken their currencies.

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