Trump is FED Up!
President Trump is not happy with the Federal Reserve. In an interview with CNBC, he said that while he put a “very good man” at the helm of the central bank (Jerome Powell), he’s “not thrilled” that interest rates are rising. The remarks got a lot of attention, because for the past twenty years or so, presidents and administration officials have abstained from commenting on the Fed’s monetary policy to preserve the central bank’s independence from partisan pressure. (For more on the complicated relationship between the Fed and Congress, check out my interview with author and Fed expert, Mark Spindel.)
As a reminder, the Federal Reserve kept short-term interest rates at zero from December 2008 until December 2015, in order to help boost economic activity during the recession and recovery. Since December 2015, the central bank has hiked rates seven times, a quarter-point at a time, to the current range of 1.75 to 2 percent, which is still considered historically low.
Despite the President’s protestations, the slow and steady march higher in interest rates is a sign that the economy is strengthening – a fact that Fed Chair Powell underscored in his recent testimony before Congress, where he said “the U.S. economy has grown at a solid pace so far this year” and labor market conditions are “robust”.
And while Trump did acknowledge that he’s letting the Fed “do what they feel is best,” he doubled down the following day on Twitter, saying that the Fed’s policy of raising interest rates is taking away from the “big competitive edge” the U.S. has. Not surprisingly, the Fed’s Board of Governors declined to comment. Earlier this month, Powell said that the central bank does not “take political considerations into account” when it determines monetary policy. The Fed is likely to raise interest rates two more times this year, which may not be a harbinger of a recession, but John Higgins of Capital Economics noted that eventually, “monetary tightening will take a toll on the economy” and will probably “contribute to a sharp slowdown in the economy next year.”
How does this Fed talk impact YOU? While rising rates are nirvana for savers (online banks are offering 1.75 percent!), borrowers have already felt the pinch. According to new data from MagnifyMoney.com, Americans have paid banks $104 billion in credit card interest and fees in the last year, up 11 percent from the prior year, and up 35 percent in five years; and average APRs on credit cards are now 15.5 percent, up nearly three full percentage points over the past five years.