Fed draws White House fire as it prepares to raise rates

‘Paris is burning’: Trump hails US economy while ‘outside world blowing up’

U.S. President Donald Trump on Monday implored the country's independent central bank to not raise interest rates again when its policy makers meet this week.

"It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike", Trump said in a tweet on Monday.

Donald Trump has stepped up his pressure on America's central bank to shelve plans for an expected increase in interest rates to prevent the bleakest December for Wall Street since the USA was in the throes of the Great Depression.

Those investors have a cheerleader in President Donald Trump, who slammed the Fed again in a tweet Monday for "even considering" another rate increase, laying out arguments against a hike to savor the achievement of a strong US economy.

"The reason why the Fed shouldn't raise interest rates on Wednesday is not because the economy's slowing down, but because the economy's growing without inflation", Navarro told CNBC television. While there may be an economic case for Chairman Jerome Powell to hold off on the ninth rate hike since December 2015, a larger threat may be eroding the Fed's inflation-fighting credibility by appearing to cave to Trump's demands.

What analysts do expect from the Fed is the message that it plans to become more flexible in its rate decisions starting next year.

It is highly unusual for a president to be publicly vocal in any criticism of the Fed, though many presidents have complained privately about higher interest rates.

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The Federal Reserve periodically raises interest rates during periods of economic growth to prevent inflation from getting out of control.

There are also fears that the brisk pace of USA growth this year reflected something of a sugar high, with the economy artificially pumped up by tax cuts and a boost in government spending.

"I just don't think of it", said Mary Daly, president of the San Francisco Fed, in an appearance last week on PBS NewsHour. "There are no politics at the Fed".

The Wall Street Journal editorial said the main argument for a rate pause was that the Fed was unwinding the biggest monetary experiment in history - the prolonged period of zero interest rates and the bond-buying programme known as quantitative easing. This will allow the central bank to pause the hiking cycle next year without causing shocks to expectations.

President Trump's observations about the US dollar and inflation aren't wrong. "The Fed's governors might have thought in September that another increase would be needed by year's end, but they should acknowledge that the market beat them to it".

His remarks bring unprecedented pressure on the central bank as policymakers meet in Washington for a two-day meeting.

Powell himself could provide clarity in his news conference if he indicates where he thinks the "neutral rate" is.

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