Trump urges Fed to lower rates, adopt quantitative easing

Trump urges Fed to lower rates, adopt quantitative easing

President Donald Trump has repeatedly called on the Fed to cut interest rates.

You may remember what happened next: Stocks tumbled, with investors concerned not just that higher interest rates would discourage consumers from buying homes and businesses from borrowing to invest, but that the Fed was blasé about signs of global economic weakness and appeared intent to march on with higher rates, even if they became inappropriate given economic conditions. This entailed a small cut in that rate to 2.35 per cent, in this hopes that this will counter an upward drift in the effective federal funds rate.

On Tuesday, Trump tweeted to Fed to cut interest rates by one percent for quantitative easing as the US GDP grows at a robust rate of 3.2 percent.

In a Twitter outburst on the first day of a two-day central bank meeting to decide the course of monetary policy, Mr Trump said, "We have the potential to go up like a rocket if we did some lowering of rates, like one point". Economists overwhelmingly expect no major change in its rate policy.

The Federal Reserve made a decision to keep USA interest rates steady at 2.25 to 2.5 per cent, on Wednesday (local time), and signalled that a rate cut - or hike - would not be happening any time soon.

"The Fed is in a sweet spot right now, with moderate growth and low inflation", said Brian Bethune, an economics professor at Tufts University in Boston. The Fed's change to a patient stance on future rate moves has not arrested this decline.

That is an improvement from the view Fed officials took after their March meeting, when they noted that "the growth of economic activity had slowed from its solid rate in the fourth quarter".

Yet beginning in January, the Fed engineered an abrupt reversal, suggesting that it was finished raising rates for now and might even act this year to support rather than restrain the economy.

Stocks have "done extremely well, and pockets of the market are overdone", said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey. It's been trying to reduce that portfolio for two years as the economy has improved by letting notes mature.

Possibly. But investors don't seem to think so.

"The Fed action is a positive, because it means that rates are going to remain low", said Tom Martin, senior portfolio manager with Globalt Investments.

USA dollar notes are seen in front of a stock graph in this November 7, 2016 picture illustration. If so, this would diminish the pace of growth and likely hold down inflation.

After four increases past year, it now stands in a range of 2.25-2.5 percent.

The Fed held its benchmark rate in a target between 2.25% and 2.5%. The jobless rate is at 3.8%, close to its lowest level in 50 years.

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