- President Donald Trump has for months been pushing the Federal Reserve and its chairman, Jerome Powell, to stop hiking interest rates.
- The Fed gave Trump some good news on that front Wednesday by saying it did not expect to raise interest rates in 2019 and would probably do so just once in 2020.
- But the reason for the pause, a softening US and global economy, will not make Trump happy.
President Donald Trump has for months blasted Federal Reserve Chairman Jerome Powell’s interest-rate hikes, imploring the chief of the central bank, which is supposed to operate independently from the executive branch, to stop tightening monetary policy.
On Wednesday, Trump finally got what he wanted from Powell and the Fed. As part of the Fed’s latest decision on interest rates, projections showed the central bank no longer expected to raise interest rates at all in 2019 and expected to just once in 2020.
While Trump was surely pleased to see that, the president might want to shield his eyes when it comes to the rest of the Fed’s statement, as the sudden pause in interest-rate hikes was largely due to the perception that the US and global economies are slowing.
For months Trump has urged the Fed to slow its pace of rate hikes to allow the economy to get stronger, calling the central bank the “biggest threat” to the economy. But rather than pausing interest rates to give the economy more room to run, the Fed is indicating it must scale back because the economy is slowing down.
In its statement explaining the decision to hold rates, the Federal Open Market Committee – which makes the interest-rate decisions – said that while the economy looked resilient, the “growth of economic activity has slowed” in recent months.
According to the Fed’s latest economic projections, US gross domestic product is expected to grow by 2.1% in 2019. That is well off of 2018’s annual GDP growth rate of 2.9% and lower than the Fed December projection of 2.3%.
During a press conference on Wednesday, Powell said that the fundamentals for the US economy remained resilient but that slowing growth in other countries could be a “headwind.”
The Fed’s projections for GDP line up with what most Wall Street economists and the Congressional Budget Office expect – all of those groups are much less optimistic than the projections from the White House. In fact, the president’s budget, released last week, estimated 3.2% GDP growth for 2019.
This could also cause Trump some political issues entering his reelection campaign. The strong economy has long been one of the president’s best political arguments. A recent CNN poll found that while only 42% of people approved of the job Trump was doing, 71% said they thought the economy was in good shape – the highest level since February 2001.
And roughly half gave Trump credit for the strength of the economy; 51% of respondents said they approved of the president’s handling of the economy.
If the economy starts to fade, or slows off of its strong pace, one of Trump’s best arguments heading into 2020 may be tarnished.
So Trump may have gotten the pause to interest-rate hikes that he wanted, but the president will not be happy with the reasons the Fed has slowed down.
Business Insider Emails & Alerts
Site highlights each day to your inbox.