Federal Reserve hikes interest rates, defying pressure from Trump

US Central bank raises benchmark fed funds rate but signals fewer hikes ahead

Defying calls by President Donald Trump to hold interest rates steady, the US central bank, the Federal Reserve, raised its benchmark interest rate by a quarter percentage point on Wednesday.

But it also struck a more dovish stance by trimming the number of projected rate hikes for next year to two instead of three.

Wednesday’s move bumps the benchmark federal funds rate to a range of 2.25 to 2.50 percent. It is the fourth rate hike this year and the ninth since late 2015.

This week’s meeting was arguably the most highly anticipated Fed gathering of the year, given the backdrop of recent market turmoil spawned by trade wars, plunging oil prices and worries over slowing global economic growth.

The US central bank has also been in Trump’s crosshairs as he lambasted rate hikes as bad for the economy and called the Fed “crazy”. On Tuesday, he urged policymakers to “feel the market” and not raise rates again.

When asked by reporters how Trump’s words factored into the Fed’s decision, Chairman Jerome Powell was adamant they have no bearing on decisions.


“Political considerations play no role whatsoever in our discussions or our decisions about monetary policy,” Powell said on Wednesday. “We have the independence which we think is essential to be able to do our jobs in a non-political way and we at the Fed are absolutely committed to that mission and nothing will deter us from doing what we think is the right thing to do.”

The benchmark federal funds rate influences both US and global financial markets. An increase in the benchmark rate raises the cost of borrowing in the United States, which tames inflation and cools the economy. It also reverberates around the globe by raising the value of the dollar against emerging market currencies.

Policymakers cited a healthy US jobs market and economic activity “rising at a strong rate” as reasons for Wednesday’s rate hike. The Fed also slightly lowered its forecast for US economic growth in 2019.

Powell said Fed officials expect the economy to remain healthy next year but emphasised that policy decisions are not on a pre-set course and any moves will continue to be driven by data. 

Investors did not appear to take heart from Powell’s words. The Dow Jones Industrial Average, which was trading higher before the chairman’s press conference, closed down about 350 points to finish at its lowest level of the year. The S&P 500 and the tech-heavy Nasdaq also closed at 2018 lows.

Source : Al Jazeera

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