The Fed and Rising Interest Rates

https://si.wsj.net/public/resources/images/BN-UK886_31EF7_16H_20170726102606.jpg
The Federal Reserve, Washington, D.C.

 

In a recent interview with the Wall Street Journal, President Trump did not hold back his critique of Jerome Powell’s Fed and their interest rate increase of the past year. With all of the market volatility over the past few weeks, it is easy to point fingers at the Fed interest rate increase, but there is more to the full economic picture.

Higher Interest=Higher Loan Costs

According to the article, the President mentioned repeatedly that the Fed is the greatest threat to economic growth. There is a degree of credibility to his complaints. Higher rates are one of the drivers behind falling auto and home sales over the past few months. Loans and mortgages are raising in cost, pushing people away from purchasing them. This not only leads to lower consumer spending, but also ripples through industries like construction, whose workers lose work with less homes being built.

Rates Do Not Affect Trade

With President Trump being the driver behind the recent tariffs, it is natural for him to only speak highly of his own policies. The economic effect of the tariffs cannot be overlooked though. Companies like Harley Davidson and BMW have already reported higher costs resulting from tariffs on steel. It is no secret that protectionist trade policies are negative on many companies growth outlooks, and are rightly a large part of the story for some of the stock market volatility.

The International Economy

Currency crisis in countries like Turkey and Argentina have helped slow the global growth outlook and put pressures on markets around the world. There is not much the U.S. can do about economic difficulties in emerging markets, though. If Mr. Powell kept interest rates exactly where they are, these struggling countries would still be facing the same turmoil.

The Overall Picture

President Trump does have some reasoning to be frustrated with rising interest rates, but there are more pieces to the economy that have investors on edge. In the end, the Fed is comprised of the top economists in the country and has plenty of research to back their policy. The president would be wise to not bring politics into the world of monetary policy, and should let the PhD’s follow their data.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s