Economy

IMF Defends Rate Hikes After Donald Trump Comments On US Federal Reserve

IMF Defends Rate Hikes After Donald Trump Comments On US Federal Reserve

International Monetary Fund (IMF) chief Christine Lagarde on Thursday defended central bank rate hikes in a veiled rebuke to Donald Trump after the U.S. president blamed "crazy" Fed policies for contributing to financial market turmoil.

On the market selloff on October 10, Trump said "actually, it's a correction that we've been waiting for for a long time, but I really disagree with what the Fed is doing".

But in August, Trump said he was "not thrilled" with Powell, though he took his criticism much further on Wednesday when he said the Fed was "crazy". "I just don't think it's necessary to go as fast".

With US unemployment at multi-year lows, wages rising and inflation pressures building the Fed has little option but to raise rates, to Mr Trump's disapproval.

"The -4.2 percent drop in the S&P 500 over the past five days has been triggered in part by fears over corporate earnings as trade uncertainties, rising input costs and higher interest costs start to bite", said economist Louis Gave of Gavekal Research in a report.

The Fed has been raising interest rates gradually since December 2015, and last month lifted its target for short-term rates to a range of 2 per cent to 2.25 per cent, responding to an economy that has been growing at a pace well above what Fed officials believe is sustainable. He has repeatedly criticized the central bank for raising interest rates this year, decisions aimed at preventing the economy from overheating. "I like to stay uninvolved", Trump said.

Higher rates can slow economic growth, erode corporate profits and make investors less willing to pay high prices for stocks.

Trump said the downslide of the stock was in fact a course correction.

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However, asked about Powell's future, Trump said, "I'm not going to fire him".

Steve Moore, who was a Trump adviser during the 2016 campaign, said the central bank traditionally raised interest rates as a way to fight inflation, but he said there weren't strong signs that inflation was threatening to impact the economy.

Trump on Thursday also indicated that the Fed's policies were harming him personally.

The central bank "is too tight", he added.

"I think they're making a big mistake", Trump said on Fox & Friends.

The central bank's preferred measure of inflation is roughly at policy makers' 2 percent objective, and Powell said last week that "the outlook of forecasters inside and outside the Fed is for more of the same".

Meanwhile, Europe's main stock markets slid by around 1.5% at the start of trading today following heavier falls across Asia and on Wall Street overnight.


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