President Donald Trump has accused the Federal Reserve of staging a Fed rate hike political attack against him personally, after the central bank’s rate-setting committee voted unanimously to raise the base rate by 25 basis points to a range of 3.75% to 4%.
Fed chairman Kevin Warsh announced the decision on Wednesday, saying: ‘The plain fact is that inflation is too high and has been for too long.’
Trump, who selected Warsh in January after souring on former chair Jerome Powell, told reporters the move was motivated by politics, not economics. ‘They’re raising that only for political reasons, and that’s a raise against Trump,’ he said.
Trump turns on FOMC after Fed rate hike political row erupts
The president directed his criticism not at Warsh but at the other voting members of the Federal Open Market Committee (FOMC). ‘He’s got a board that was put there by a lot of other people, and the interest rates are too high,’ Trump said. ‘They’re not appropriate.’
Trump added that he had told Warsh before the vote: ‘You might as well vote with the board because it’s not going to matter.’ He called the FOMC members ‘very political’ and ‘a bunch of politicians or people put on by politicians’.
According to NBC News, when Warsh took office in May, Trump said he simply wanted the new chairman to focus on the job. Wednesday’s comments mark a sharp change in tone.
Warsh, whom critics had feared would act as a White House loyalist, backed the rate rise in full. His unanimous support from the FOMC will reassure investors that the central bank remains, as legally mandated, independent of political pressure.
Inflation above target for more than five years
The backdrop to the decision is a prolonged inflation overshoot. Warsh noted that inflation has not been at or below the Fed’s 2% target for more than five years. It currently stands at 3.4%, driven in part by supply-side pressure on oil markets from the US-Iranian conflict in the Middle East.
Chicago Fed president Austan Goolsbee, in an interview with Fortune earlier this month, said progress on inflation had stalled. ‘After a couple of years of strong progress, it stalled out and started getting worse,’ he said. ‘Our challenge is the inflation.’
On the other side of the Fed’s dual mandate, the labour market has held up. The Bureau of Labor Statistics reported this month that the US economy added 162,000 jobs in August, with the unemployment rate unchanged at 4.1%.
The rate rise was widely anticipated. The vast majority of interest rate traders and Wall Street analysts had expected a hike ahead of Wednesday’s announcement, as had politicians on Capitol Hill.
Trump suggested the economy could ‘barrel through’ higher borrowing costs, arguing it was ‘doing so well’. But his public claim that Warsh ‘might as well’ have voted for the rise, rather than acting out of conviction, risks muddying the chairman’s efforts to anchor inflation expectations.
Markets have typically looked through Trump’s comments on monetary policy until concrete policy action follows. According to CNBC, Trump chose Warsh for the role in January after his relationship with Powell broke down, with Warsh now navigating the same political pressure that dogged his predecessor.
With midterms approaching, a Pew Research study found the economy was the top priority for consumers at 29%, with affordability cited by a further 15%. Warsh’s next challenge is keeping that discontent from feeding back into price pressures.
