We’re in no rush to cut rates, insists defiant Federal Reserve chief
The US Federal Reserve risked the wrath of Donald Trump last night as it left interest rates on hold and indicated there was no rush to cut them, writes John-Paul Ford Rojas.
Fed chief Jerome Powell shrugged off pressure from the President, who has laid siege to the central bank with his demands for cuts.
Powell also defended the bank’s independence and role in maintaining the credibility of monetary policy.
“If you lost that, it’s going to be hard to retain it. We haven’t lost it. I don’t believe we will. I certainly hope we won’t,” he said.
As the US dollar reeled after days of declines amid “sell America” trading, Powell tried to steer clear of his battle with Trump as he faced reporters.
He also declined to engage with questions over Trump’s decision – expected imminently – on who will succeed him as Fed chairman in May.
It was the first rate decision since Powell claimed the Trump administration was trying to intimidate the Fed by launching a criminal probe into costly building renovations.
He avoided going into further details about his views on the probe but made clear his belief that the bank must remain independent from political control – a clear swipe at Trump’s attempts to influence decisions.
Powell said: “Every advanced economy, democracy in the world has come around to this common practice.
“It’s an institutional arrangement that has served the people well.
“That is: to not have direct elected official control over the setting of monetary policy.
“I think if you lose that it would be hard to restore the credibility of the institution, if people lose their faith that we’re making decisions only on the basis of our assessment of what’s best for everyone, for the wider public, rather than trying to benefit one group or another.”
Trump has piled pressure on the Fed to cut rates, calling Powell a “numbskull”.
But the rate-setters are balancing the need to keep the economy and jobs market ticking over against the need to bring inflation down to a 2pc target.
Rate cuts that tend to juice growth and jobs would be seen as likely to push up inflation.
The Fed assessed inflation remains “elevated” and the economy robust, and it has softened language about the fear of job cuts – showing it is in no hurry to cut further after leaving rates in a range of 3.5pc-3.75pc last night.
And Powell said that after three cuts late last year: “We think we’re well-positioned here to watch how the economy performs, to look at the data.”
It comes after a week of drama as the dollar hit a four-year low against a basket of rival currencies, spurred by threats over Greenland as well as the Fed and exacerbated by comments from Trump that appeared to endorse the sell-off.
Yesterday, the dollar regained some ground but the ructions over the Fed will continue to be closely watched by traders.
It was the first rate decision since Powell claimed the Trump administration was trying to intimidate the Fed by launching a criminal probe into costly building renovations. (Pic: Chip Somodevilla/Getty Images)
Richard Flynn, managing director at Charles Schwab UK, said: “These are extraordinary times for US monetary policy.
“A growing public tussle between monetary independence and fiscal authority has brought the Fed’s institutional credibility into sharper focus.
“That independence remains a cornerstone of global confidence in the dollar, US Treasuries and American capital markets more broadly.”
