The downturn in US equities markets last week triggered President Trump to hit out at the Federal Reserve, labeling the central bank “crazy” and “out of control”.
While he noted that the correction – which saw the Dow Jones Industrial Average fall by more than 800 points in a single day – was to be expected, Mr Trump disagreed with the US central bank’s monetary policy decisions. It has raised rates three times this year.
“I think the Fed is making a mistake. They are so tight. I think the Fed has gone crazy,” he said.
“Actually, it’s a correction that we’ve been waiting for a long time, but I really disagree with what the Fed is doing.”
However, AMP Capital chief economist Shane Oliver believes the Fed has been “very responsible” in raising rates back towards more normal levels because economic conditions justified it but doing so in a gradual manner because inflation has been benign.
“That said, Fed chair Powell’s comments that seemed to swing from leaning dovish and channeling 1990’s Alan Greenspan just a few weeks ago to sound more hawkish recently may have confused things a bit when in reality nothing was really changing,” Mr Oliver said.
“While Trump’s regular criticism of Fed rate hikes won’t stop them from doing what is necessary for the economy, there is a risk that he will blame the Fed for the next inevitable downturn and this may threaten its independence. And history tells us that when politicians control central banks, the job is done badly.”
