The president will not be happy about the decision to cut interest rates again
On Wednesday, fed policymakers are expected to cut the interest rates again. This would be the third time since mid-year July. However, this move could be halted considering the positive news surrounding the preliminary trade deal between President Donald Trump and President Xi Jinping of China. If there is no evidence of economic turmoil, then there may not be a need for a boost from the central bank.
Last week, Trump took to Twitter to attack the Fed and admonish it to take bolder steps that will stimulate growth as reelection campaigns kick-off. Gus Faucher, PNC Financial’s chief economist believes that since the economy is not in a recession and unlikely to enter it, the Fed needs to stop cutting the rates. He adds that President Trump will not like the plan.
As the presidential race for 2020 closes in, Trump’s base for reelection which is the strong economy could be affected negatively. At best, it could be placed on par with former President Barrack Obama. This is enough reason for Trump to be unhappy about the cuts.
As the battle between the Fed and Trump continues, the central bank is in a bind. The 50-year low unemployment rate, as well as healthy consumer spending, suggests that the economy does not need any intervention to boost it up. The market participants were almost unanimous in their prediction that the Fed will lower the rates today. However, close to 80% of this number expects the move to be held off in December. New data shows that businesses are holding back on investing due to trade tensions and inflation is below the 2% target of the central bank. Manufacturing is also contracting and these factors make a case for the lower rates.