Tue, Jul 31, 2018 - Page 10 News List

Fed rate rises are OK, Mnuchin says

‘VERY CAREFUL’:The Fed is targeting 2 percent inflation and the US needs to have higher interest rates to manage that, US Secretary of the Treasury Steven Mnuchin said

Bloomberg

US Secretary of the Treasury Steven Mnuchin on Sunday suggested that it was fine for the US Federal Reserve to be raising interest rates, after his boss, US President Donald Trump, recently criticized the central bank for doing just that.

Mnuchin agreed in response to a question that it was responsible for Fed Chair Jerome Powell and his colleagues to be increasing rates as the economy grows faster and inflation picks up.

“The Fed has been targeting 2 percent inflation,” Mnuchin said on Fox News Sunday. “Obviously, with 2 percent inflation we have to have at least slightly higher interest rates to manage through that.”

Powell and his fellow policymakers are widely expected to hold interest rates steady when they meet this week to map monetary strategy.

Last month, they raised their target range for the federal funds rate to 1.75 to 2 percent and penciled in two additional, quarter-percentage-point increases for the second half of this year.

Mnuchin’s remarks follow a series of comments about the Fed by Trump that raised concerns among some economists about the central bank’s ability to carry out monetary policy free of political interference.

In an interview with CNBC on July 19, Trump voiced frustration with the Fed for raising rates.

“I am not happy about it,” the US president said. “But at the same time I’m letting them do what they feel is best.”

Trump also called Powell, whom he appointed to succeed former Fed chair Janet Yellen, “a very good man.”

Trump’s remarks broke from more than two decades of White House tradition of avoiding comments on monetary policy, out of respect for the independence of the central bank, and its dual goals of encouraging low unemployment and stable prices.

Trump respects the independence of the Fed, even though the US president has “concern” about interest rates going up, Mnuchin said.

“We as an administration absolutely support the independence of the Fed,” he said.

Noting that financial markets expect rates to keep rising, Mnuchin said: “The only question is how far and for how long” they will increase.

“We think the Fed will be very careful in managing the economy,” he added.

Speaking on Fox’s Sunday Morning Futures, US Vice President Mike Pence suggested that the central bank needed to avoid squelching the stronger growth the economy is experiencing.

“We don’t want policies whether on Capitol Hill or elsewhere that diminish the tremendous energy we have in this economy,” Pence said in a pre-recorded interview.

Both Pence and Mnuchin echoed Trump’s enthusiasm about the US economy after Friday’s news that it grew at a 4.1 percent annual pace in the second quarter, the fastest since 2014.

The surge shows the US is “well on the path” for four or five years of sustained annual growth of 3 percent, Mnuchin said — an outlook at odds with many economists who see the pace of the expansion ebbing in 2020 and beyond.

The second quarter pick-up was propelled by consumer spending, business investment and a decline in the trade deficit.

However, as the effects fade from the tax cuts, economists expect growth to moderate, with forecasts showing it will come in about 3 percent this year. That would still make this year’s performance the best since 2005.

“We are on track to be at 3 percent or better this year,” Pence said.

While many economists agree that growth this year will be boosted by Trump’s tax cuts, they are skeptical the economy can maintain the 3 percent pace over the longer term as aging Baby Boomers retire and drop out of the workforce.

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