Thu, Aug 02, 2018 - Page 10 News List

Fed expected to keep interest rates unchanged

RISK OF OVERHEATING:The US central bank in June said it expected to raise interest rates twice more this year and analysts said the first hike might take place next month


The US Federal Reserve was yesterday likely to point to strong economic growth, low unemployment and rising inflation as reasons to stay on a path of gradually lifting interest rates.

However, it was unlikely to make any interest rate moves.

The Fed’s statement might also discuss potential risks from rising trade tensions.

However, it was almost certain that the statement would not acknowledge the recent criticism lodged at the central bank from US President Donald Trump.

The Fed has already raised rates two times this year in March and June. It signaled at the June meeting that it expected to raise two more times this year.

Many analysts believe those hikes will occur next month and in December.

The string of quarter-point rate hikes is intended to prevent the US economy from overheating and pushing inflation from climbing too high.

However, higher rates make borrowing costlier for consumers and businesses, and can weigh down stock prices.

Trump has said he has little patience for the Fed’s efforts to restrain the economy to control inflation.

“Tightening now hurts all that we have done,” Trump tweeted last month, a day after he said in a television interview that he was “not happy” with the Fed’s rate increases.

Over the past quarter-century, US presidents have maintained silence in public about Fed actions, believing that lodging complaints would be counterproductive.

That is because it could produce even faster rate hikes if the central bank feels the need to convince financial markets that it will not yield to political pressure and allow inflation to rise to worrisome levels.

Following Trump’s comments, US Secretary of the Treasury Steven Mnuchin tried to strike a reassuring note that the White House does not want to interfere with the Fed’s policymaking.

“We as an administration absolutely support the independence of the Fed, and the president has made it clear that this is the Fed’s decision,” Mnuchin said on Fox News Sunday.

At the moment, economic growth is strong, rising at an annual rate of 4.1 percent in the April-to-June quarter, the best showing in nearly four years.

Unemployment is at a low 4 percent, and some analysts believe it will fall further when the government releases last month’s figures tomorrow.

However, there are worries as well, led by fears of what a Trump-led trade war might do to growth in the US and around the world.

Delivering the central bank’s semi-annual report to the US Congress last month, Fed Chairman Jerome Powell refrained from criticizing the Trump administration’s effort to use the threat of tariffs to try to lower trade barriers.

However, Powell said that the Fed was hearing a “rising chorus of concern” from business contacts about the harm a trade war could cause.

Powell has not publicly addressed Trump’s criticism of Fed rate hikes.

However, he had previously said in a radio interview that the central bank has long operated independently in making interest-rate decisions based on what was best for the economy and not in response to political pressure.

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