Fed draws Trump rebuke after rate cut: 'Powell let us down'
A divided Federal Reserve on Wednesday announced it is cutting interest rates for the first time in more than a decade, as a slowdown in global growth and the fallout from President Donald Trump’s trade wars cloud an otherwise solid U.S. economy.
The Fed lowered rates by one-quarter of a percentage point, in a move that meets market expectations but drew a quick rebuke from Trump, who has relentlessly pressed the central bank to aggressively slash rates as his reelection campaign gets under way. Fed Chairman Jerome Powell has doggedly insisted that the central bank is not influenced by political interference.
Trump has touted the U.S. economy as the “best ever” but wants the Fed to help continue the record-long expansion and to weaken the dollar to give American exporters a competitive advantage.
“As usual, Powell let us down,” he tweeted on Wednesday.
Trump was upset because the Fed in its post-meeting statement gave no clues as to whether more cuts might be coming, and Powell in his post-meeting press conference was not much more forthcoming. That's an indication that the central bank itself is unsure about its next steps.
The Fed chief suggested he doesn’t expect this to be the start of a series of rate cuts, referring to it instead as an “adjustment,” but he did not close the door on the potential for more. That caused markets, which had been hoping for confirmation that more cuts are coming, to tumble.
“What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world,” Trump said in his tweets a couple of hours later.
The Fed’s rate-setting committee said its move today came “in light of the implications of global developments for the economic outlook as well as muted inflation pressures.” Inflation has persistently remained below the central bank’s 2 percent target, despite unemployment below 4 percent, suggesting there is more room for people to join the labor market and for wages to rise.
Powell, in his press conference, said the cut was intended to keep the outlook favorable amid signs that trade tensions and slowing global growth are hurting the U.S. economy.
“Trade is unusual,” he added. “There isn’t a lot of experience in responding to global trade tensions. So it is something that we haven’t faced before, and we’re learning by doing.”
He said trade does seem to be having “a significant effect on financial market conditions and on the economy” but emphasized that it is not the Fed’s job to make critiques of trade policy.
Two officials voted against the cut — Kansas City Fed President Esther George and Boston Fed President Eric Rosengren, preferring for the central bank to stand pat. It’s the second time there has been dissent under Powell, reflecting the growing divide among officials in their opinions of how to respond to the complex economic outlook.
The central bank also announced that this week it will stop shrinking its massive stockpile of Treasury bonds and bundled mortgages, which it bought in the wake of the 2008 financial crisis to boost the economy. That would be two months earlier than it had planned.
Ending that wind-down will ensure there is enough cash in the financial system for banks to fund their operations and meet their regulatory requirements for a rainy-day fund.
Trump has regularly criticized the Fed’s balance sheet reduction, also called “quantitative tightening.” He has even suggested the Fed should restart its bond purchases to make the economy take off like a “rocket ship,” but the central bank would be highly unlikely to do so unless the economy were in more serious trouble.
“At least he is ending quantitative tightening, which shouldn’t have started in the first place - no inflation,” Trump said in another tweet Wednesday. “We are winning anyway, but I am certainly not getting much help from the Federal Reserve!"
Powell weathered the president’s anger last year when the Fed raised interest rates against Trump’s explicit wishes, something that reportedly led the president to explore whether he could fire the Fed chief. The central bank had been on “pause” this year as it monitored growth domestically and abroad.
But Powell’s larger political challenge might lie ahead, with the Fed now cutting rates — something that he will have to convince Congress and the public isn’t just because the president wants him to.
Despite Trump’s regular attacks, Powell has maintained widespread approval on Capitol Hill, as evidenced by warm comments from lawmakers on both sides of the aisle during his two days of testimony earlier this month.
Sen. Pat Toomey (R-Pa.), an influential member of the Banking Committee, told him he was doing an “outstanding job,” while Rep. David Scott (D-Ga.) assured him that Republicans and Democrats have “got your back.” Many thanked him for ignoring short-term political considerations.
Meanwhile, former Fed Chair Janet Yellen helped bolster the non-political case for a rate cut, saying at an event in Colorado over the weekend that she would “be inclined to cut a bit” were she still at the central bank. Powell has repeatedly said that the Fed does not take political considerations into account, a point optically supported by Trump’s frustrations with him.
“The Fed has made all of the wrong moves,” Trump tweeted Monday. “A small rate cut is not enough, but we will win anyway!”
