More Rate Hikes to Come Based on Minutes Released from Fed Meeting

Dwayne Harmon
October 21, 2018

While the Fed is politically independent and its policymakers have nearly uniformly signaled they intend to keep tightening monetary policy in the face of record low unemployment and signs of inflation, some economists have warned that Trump's hectoring could eventually harm its legitimacy. Yellen on Monday said she feared the economy could soon overheat, an indication that she would also support hiking interest rates.

The minutes did not indicate that officials reached a conclusion.

The minutes showed that "almost all" policymakers agreed it was time to stop saying they were stimulating the economy.

Cohn, who left the White House in March, said in an interview that aired on CNBC that the Federal Reserve is "doing their job as an independent agency".

"The combination of a strengthening US dollar and commodity price pressures could bring a test of the two-year low around $0.7040 in the coming sessions", said Sydney based Michael McCarthy, chief market strategist at CMC Markets.

Past U.S. presidents have criticized the central bank, but the recent run of invective was unusual even for Trump, where he has called the Fed "crazy", "loco", "ridiculous", and "too cute". "Obviously, presidents can speak out if they choose to and give their opinions about policy, there's no law against that, but I don't think it's wise and I do think the Fed has a strong reputation for acting in an independent and non-political way and I would not like to see that reputation damaged".

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Oanda analyst Craig Erlam said the Fed minutes re-affirmed the widely held opinion at the USA central bank that interest rates have further to rise, including another hike this year. Rising rates can often depress stock prices by leading investors to shift money out of stocks and into bonds to capture higher yields.

Asked about his decision to replace Janet Yellen with Powell, Trump said: "Can I be honest, I'm not blaming anybody".

In theory, Trump's concern that the Fed could potentially threaten economic growth isn't without cause.

Further rate increases "would be taking somewhat more recession risk than otherwise" unless the economy continues to outperform, he said. The minutes noted that the tax cuts Trump had pushed through Congress late last year, along with the spending increases Congress approved at the start of this year, were helping boost economic activity.

Rounds says global factors, like tariffs also play into the economic uncertainty... Nonetheless, in the face of a hot labour market and signs of inflation, the Fed has settled into a gradual policy tightening and is expected to raise interest rates again in December.

Randal Quarles, the US central bank's vice chair of supervision, who rarely discusses monetary policy, said he was optimistic about the economy's prospects, and that calls for continued "stable, gradual, and predictable" policy tightening.

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