US Politics: Trump says Fed has 'failed again' after latest interest rate cut

Trump has launched another verbal attack on the Fed
Trump remains unimpressed with the Fed's interest rate policy

The Federal Reserve decision to cut US interest rates for only the second time since 2008 wasn't enough to satisfy Donald Trump. Tradefair brings you the latest from US politics...

"Jay Powell and the Federal Reserve fail again. No 'guts,' no sense, no vision! A terrible communicator!"

- Donald Trump

The US Federal Reserve this week made the decision to reduce interest rates for only the second time since 2008, but it wasn't enough to shield the central bank from another barrage of criticism from the president.

Donald Trump has repeatedly urged the Fed to stimulate economic growth by cutting the interest rate, which lowers the cost of borrowing for businesses and consumers. This week's reduction wasn't enough to satisfy Trump, who tweeted: "[Fed chairman] Jay Powell and the Federal Reserve fail again."

The president claims US monetary policy is putting the country at an economic disadvantage to its global competitors, such as China, but the Fed gave little signal of further rate cuts before the end of the year.

A split decision

Against a backdrop of slowing global growth and trade wars - most notably that between the US and China - America's central bank decided to lower interest rates to a target range of 1.75% to 2%, a quarter-point drop.

While widely expected, it wasn't a unanimous decision by the Federal Reserve Open Markets Committee. Seven of the ten members that make up the committee voted in favour of the cut, including Powell, while two voted to hold the rate steady. Only one member backed a bigger reduction.

This was the second change in interest rate policy in recent months, following a similar lowering of rates in July. Prior to that, the interest rate had been on a steady upward trend since late 2015, which reflected the underlying health of the US economy.

The Fed said its recent decisions to lower the rate were aimed at shoring up the American economy, amid concerns around the current state of global economic growth and persistent trade tensions.

"The thing we can't address really is what businesses would like, which is a settled roadmap for international trade ... but we do have a very powerful tool which can counteract weakness to some extent," said Powell, referring to the bank's control over the central interest rate.

The Fed also released economic projections this week suggesting the US economy will grow by 2.2% this year, faster than was previously forecast.

According to analysts, this indicates the central bank is more concerned about global factors, such as the still unresolved trade dispute between America and China, than the fundamental strength of the US economy.

"This move is all about the deterioration in the global economic outlook over the late summer and very little about incoming US data," said Brian Coulton, chief economist at Fitch Ratings.

"While the Fed has maintained its 'will act as appropriate' language, we still see this as an insurance policy move and don't expect a series of further rate cuts."

'No guts'

The combination of only a quarter-point reduction in the interest rate and doubts about any further cuts before the end of the year led to an angry reaction from Trump. The president has regularly called for a more drastic lowering of the rate, often levelling personal criticism at Powell and once describing the Fed chairman as "clueless".

After accusing the central bank of "fail[ing] again", Trump tweeted: "No guts, no sense, no vision!"

The president also described Powell as a "terrible communicator".

Earlier in the week, Trump took to Twitter to argue that the US is paying a "much higher interest rate" than other countries, adding that America's global competitors "can't believe how lucky they are that Jay Powell and the Fed don't have a clue".

Trump has even gone as far as to say the Fed should "get our interest rates down to zero, or less". Powell said this week the idea of introducing negative interest rates is "not at the top of the list".

The market impact

Stock markets in the US fell immediately after the interest rate announcement, but later recovered. The Dow Jones Industrial Average witnessed early losses of up to 200 points, or 0.8%, while the S&P 500 dropped a similar amount and the Nasdaq Composite lost as much as 1.1%.

Stocks closed relatively flat on Wednesday September 18th, with the markets appearing to take little confidence from the Fed's split decision and expectations that the rate will remain unchanged for the rest of the year.

Drew Matus, chief market strategist at MetLife Investment Management, told CNBC: "I think the market got into its head it wanted more rate cuts. Market participants and economists are seeing two different things.

"If [the Fed] really wanted to convince people these are insurance cuts, then they're done. They're done this year."

On the other side of the Atlantic, the FTSE 100 dipped slightly on Wednesday ahead of the Fed announcement, but rallied on Thursday morning.

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