Trump says Federal Reserve chief Powell 'let us down' after interest rate cut

Federal Reserve Chairman Jerome Powell has said repeatedly that he intends to serve his full four-year term as chair and that "the law is clear" on that issue.
Federal Reserve Chairman Jerome Powell has said repeatedly that he intends to serve his full four-year term as chair and that "the law is clear" on that issue. PHOTO: EPA-EFE

WASHINGTON (BLOOMBERG) - United States President Donald Trump said Federal Reserve chairman Jerome Powell "let us down" by delivering an interest-rate cut that was not aggressive enough to fight the trade and currency battles his administration is waging.

Mr Trump, who called this week for a "large" cut in the benchmark rate, took to Twitter to slam the Fed's 25 basis-point reduction. And while the Fed chief played down expectations of more cuts to follow, Mr Trump said he should have done the opposite.

"What the market wanted to hear... was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, the European Union and other countries around the world," Mr Trump said on Twitter. "As usual, Powell let us down."

The President says the Fed should be supporting his administration's efforts to make America more competitive with rivals such as China and allies in Europe. He has accused those countries of manipulating their currencies - including via lower interest rates - in a bid to grab export markets.

Mr Trump wants Mr Powell to follow suit. He has had the central bank in his crosshairs since last year, when it raised interest rates four times. The President has also discussed currency intervention with his aides to weaken the dollar and told reporters last week that he had not taken such measures off the table.

He is not the only elected leader applying more pressure on monetary officials who are supposed to be insulated from politics. It is happening in countries from Turkey to India - leading some investors and economists to fret about the future of central-bank independence.

While the President delivered a thumbs-down verdict after Wednesday's decision, he did credit Mr Powell for halting the Fed's offloading of its securities portfolio, which Mr Trump calls quantitative tightening, earlier than expected.

The Fed said on Wednesday that it will halt the balance-sheet shrinking as of Thursday (Aug 1), instead of at the end of September as previously scheduled.

Mr Trump's frustration with the Fed reached a point where he began asking aides about his ability to oust Mr Powell, in discussions reported by Bloomberg News on Dec 21.

Advised that he doesn't have the authority to fire Mr Powell outright, the President asked White House lawyers in February to explore whether he could strip him of his chairmanship, a legally dubious move that could lead to a messy court battle. After Bloomberg News reported this twist, Mr Trump said on June 23 that he has the power to demote Mr Powell.

Mr Powell has said repeatedly that he intends to serve his full four-year term as chair and that "the law is clear" on that issue. Earlier this month, in answer to a question from lawmakers during his testimony before Congress, Mr Powell said he wouldn't step down from his job if Mr Trump attempted to fire him.

While the President's demand for a more aggressive Fed is echoed by some investors, the case for a sharp cut in interest rates isn't obvious to everyone.

US stocks are high, unemployment is around the lowest in a half-century and consumers continue to spend. There's also a risk that lower rates will lead to asset bubbles and excessive borrowing that will haunt the economy later.