By Joyce Yu
Philadelphia, PA–U.S. President Donald Trump turned attention to the Federal Reserve with criticism of its rate policy. On Friday, he tweeted that higher interest rates are taking away America’s competitive edge with China. This followed his interview with the CNBC on Thursday during which he said he was not happy with the central bank hiking interest rate.
“Because we go up and every time you go up they want to raise rates again. I don’t really — I am not happy about it. But at the same time I’m letting them do what they feel is best,” he said in the interview. The White House stressed after the interview that the president did not mean to influence the central bank’s decision-making.
Yuan has continued to weaken for the past month, being traded at 6.8077 to the dollar overnight, first time surpassing the 6.8 level since more than a year ago. Chinese central bank set the official mid-point at 6.7671 before the market open, the weakest fixing in a year, according to Reuters.
Higher interest rates will strengthen the US dollar too much, putting the United States at a “disadvantage” while central banks in Europe and Japan keep rates low, pointed out by President Trump in the interview, who also commented the Chinese yuan is “dropping like a rock.”
“Given his penchant for breaking with tradition, we are not surprised with the president’s comments … His comments are likely to add to financial market volatility, at least in the beginning,” Joseph Capurso, a currency strategist at Commonwealth Bank of Australia, wrote in a note.
The Fed hasn’t commented on Trump’s remarks and investors expect Federal Reserve Chairman Jerome Powell to stay on course. Powell said in an interview last week with “Marketplace”, “We have a long tradition here of conducting policy in a particular way, and that way is independent of all political concerns.”
Earlier this week, Powell offered sunny view of the US economy in his written testimony to the Senate Banking Committee. He said, “With appropriate monetary policy, the job market will remain strong and inflation will stay near 2% over the next several years.” The central bank “believes that – for now – the best way forward is to keep gradually raising the federal funds rate” in a way that keeps pace with a strengthening economy but does not increase rates so high or so fast that it weakens growth, Powell said. The market expects two more hikes this year after Powell’s remarks.