President Donald Trump has some advice for the Fed. Speaking to reporters at the Irish Open golf tournament today, he said he did not know whether Fed policymakers will raise interest rates at their meeting this week. But he said the US "should be paying the lowest interest rate in the world" even though economic growth is robust and inflation remains sticky above the Fed's 2.0% target.
The President was a frequent critic of former Fed Chair Jay Powell. He has been more supportive of the new Fed Chair Kevin Warsh. But Trump recently made his demands clear. "LOWER THE RATE OR I'LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT," Trump posted on social media two weeks ago.
Warsh is likely to displease Trump on Wednesday, when the FOMC is widely expected to hike the federal funds rate by 25bps to a range of 3.75%-4.00%. A couple of dissenters may emerge, but Warsh won't be one of them. Furthermore, he is likely to be quite hawkish during his press conference after the FOMC meeting on Wednesday. While he has foresworn providing any forward guidance, we expect that his comments will convince financial market participants that this may be the beginning of a rate-hiking cycle.
