Market MovesApril 17, 2019

Too Bad, Trump: Looks Like the Fed Won’t Lower Rates

Despite political pressure to reduce them, the central bank seems tilted toward eventual hikes.

Reported by Larry Light

So will the Federal Reserve actually lower short-term interest rates to please the pols? Maybe not. There’s little evidence that the Fed wants to take this step, which some are urging, including at 1600 Pennsylvania Avenue.

In fact, the Fed may actually be inclined to raise them, at some point, once it sees that economic growth is likely to continue. The Fed’s board of governors and regional presidents, as of the March meeting, are foreseeing slightly higher rates ahead. They expected no action this year and a median benchmark rate near 2.6% next year and in 2021, with a longer-term outlook of 2.8%.

The futures market believes that by year-end, odds are 62.2% that the Fed will stand pat, with 31.2% betting that rates will be pushed down by a quarter-point, according to the CME Group. Now, the Fed’s target range for the short-term benchmark federal funds rate is 2.25% to 2.5%, with the actual rate at the moment resting at 2.5%.

The minutes of the Fed’s March conclave indicated that an assessment of risks had led the Fed to believe that “the outlook would likely warrant leaving the target range unchanged for the remainder of the year.” Indeed, Fed Chairman Jerome Powell recently told Congress that they were in “no rush” to take action on rates.

Boston Fed President Eric Rosengarten said last month that the body would need “several meetings” to get a clear enough read on the economy before deciding to do anything with interest rates. “There are a number of near-term risks that hopefully will be clarified by summertime,” he said.

Such inertia is not welcome at the White House. President Donald Trump has launched a Twitter campaign to urge the Fed to lower short rates and not phase out its bond-buying program, aimed at lowering longer rates. He claims that the Fed’s rate-hiking campaign has retarded the economy’s growth.

Since 2015, the Fed has been boosting rates, with four increases last year. The central bank lifted them from the near-zero level set during the financial crisis.

Trump has tapped two loyalists to the Fed’s board of governors: conservative pundit Stephen Moore and pizza magnate Herman Cain, who ran for the 2012 GOP presidential nomination. Both support lower rates. Several GOP senators oppose Cain, though, so his prospects at the Fed are dim.