Trump Ratchets Up Pressure for Fed Rate Cut

Trump Ratchets Up Pressure for Fed Rate Cut

That's the easy part.

U.S. President Donald Trump on Tuesday called on the Federal Reserve to make a large interest rate cut, saying he was disappointed in the U.S. central bank and that it had put him at a disadvantage by not acting sooner.

This was rejected by chief economic adviser Larry Kudlow, who said: "What the President is concerned about is foreign countries may be manipulating their own currencies lower to try to gain some short-term temporary trade advantage". A step to bolster sluggish inflation? Like other labor market indicators, USA jobless claims now are not flashing red. Over the last several weeks, Fed policymakers have floated each of these ideas and others.

The Fed's big problem is that the economy isn't doing badly enough for rate cuts - no matter how much the president begs. How are they gonna explain rate cuts when the economy seems to be doing just fine, or - at the very least - is doing about the same as it was at the end of previous year when the Fed was raising rates?

Investors should get some clarity when the Fed's rate-setting committee releases its policy statement at 2 p.m. EDT (1800 GMT) on Wednesday after the end of a two-day meeting.

The core of the FOMC is made up of Fed Chair Jerome Powell and Vice Chair Richard Clarida and New York Fed President John Williams, who serve as his pillars.

Policymakers at the USA central bank have made clear they think the nation's labor market looks pretty solid.

The year ended with the unemployment rate at 6.7%; it is now 3.7%, while inflation by the Fed's preferred measure is still, at 1.8%, below the USA central bank's 2% annual target.

In three of them - 2007, 2001 and 1998 - the votes to lower rates for the first time in a cycle were unanimous.

Trump has blamed the rate increases for the economy not growing at 4% GDP a year ago.

Even when grouping together a number of so-called leading indicators - from the labor market, factory shipments and interest rate spreads among others - the US economy isn't showing much sign that a recession is looming.

First, the central bank might have room to maneuver.

The government reported last week that the US economy, as measured by the gross domestic product, slowed to an annual growth rate of 2.1% in the April-June quarter, down from a 3.1% pace in the January-March period. But it also underscored the weak business investment and inflation that has anxious Powell.

As well as limiting inflation, it gives the central bank more room to cut rates if the economy slows and a recession occurs.

"I think it's a stretch to think this either is or should be the beginning of an easing cycle; it's simply not warranted", said Ward McCarthy, chief US economist at Jefferies.

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