Trump hits out at Fed’s ‘faulty thought process’

Trump hits out at Fed’s ‘faulty thought process’

Donald Trump took aim at the “faulty thought process” at the Federal Reserve less than a day after the central bank’s New York branch took the unusual step of clarifying one of its policymakers’ speeches that boosted market expectations for aggressive interest rate cuts.

In his second Twitter attack on the Federal Reserve this week, the US president took to the social media platform on Friday and said: “Because of the faulty thought process we have going for us at the Federal Reserve, we pay much higher interest rates than countries that are no match for us economically.”

“In other words, our interest costs are much higher than other countries, when they should be lower. Correct!”, he continued.

Mr Trump has regularly lambasted the Fed and its chairman, Jay Powell, for raising interest rates, potentially holding back economic growth.

Mr Powell signalled in early June the central bank stood ready to cut interest rates, saying it would “act as appropriate to sustain the expansion” amid the economic impact of escalating trade disputes, which the Trump administration has initiated with the US’s allies.

Mr Trump’s comments on Twitter today stopped short of a direct reference to the whiplash in markets yesterday following a speech from New York Fed president John Williams.

Mr Williams laid out the case for easing monetary policy in a low interest rate environment sooner rather than later, which led markets and some economists to boost their forecasts the Federal Open Market Committee would cut interest rates by 50 basis points when it meets later this month, rather than the 25bp previously pencilled in.

A few hours later, a New York Fed spokesperson cautioned against reading too much into the comments by Mr Williams, saying: “This was an academic speech on 20 years of research. It was not about potential policy actions at the upcoming FOMC meeting.”

The probability of a 50bp rate cut this month dropped back to 44 per cent following the clarification, compared with 66 per cent following Mr Williams’s speech, and a 40 per cent chance before he took to the stage.

In morning trade, the yield on the policy-sensitive two-year US Treasury was up 3bp at 1.8059 per cent, while that on the benchmark 10-year Treasury rose 0.7bp to 2.0465 per cent.

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