Trump can rail against Powell, but he can't fire him

U.S. President Donald Trump walks on the South Lawn after returning to the White House in the early morning hours from a trip to Mississippi

In an interview with the Washington Post this week, US President Donald Trump blamed the recent stock market declines and General Motors' recent announcement of plant closures and layoffs on the Federal Reserve, criticizing Federal Reserve Chair Jerome "Jay" H. Powell, whom he nominated past year.

The president past year selected Powell, at the time a Fed board member, to lead the central bank after a highly public selection process in which he chose not to offer a second term to Chair Janet Yellen.

Mr Powell "gave the market, and presumably President Trump, exactly what he wanted, which was an admission that the previously proposed path of future rate hikes was probably too aggressive and opening to slowing the rate of hikes", Oliver Pursche, vice chairman and chief market strategist at Bruderman Asset Management, told Reuters.

"I think he's assuaging fears, saying that they'r willing to do anything they need to do, '" said Michael Skordeles, US macro strategist at SunTrust Advisory Services in Atlanta, regarding the bank's response to Brexit.

Wall Street stocks rallied on Wednesday (Nov 28) after investors cheered remarks from the Federal Reserve chairman which they viewed as a sign interest rates may not rise much further. But many economists warn that the attacks actually could pressure the central bank to raise rates to demonstrate its independence from political influence.

Factually, Powell's remarks on Wednesday and in October are both true.

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The midpoint of the Fed's neutral range is 3 per cent, and Mr. Powell has previously suggested that the central bank may have to go beyond neutral to cool the USA economy, which, with unemployment at a half-century low, has nearly certainly overheated somewhat in this cycle. "I am pleased to say that our economy is now close to both of those objectives", Powell said in an appearance at the Economic Club of NY.

Powell has faced an unprecedented backlash from the president. "They're making a mistake because I have a gut and my gut tells me more sometimes than anybody else's brain can ever tell me". Investors have overreacted to relatively nuanced comments from Powell in the past, and it is possible some misread his comments by believing he was telegraphing an end to interest rate increases.

The Fed has already raised a key interest rate three times this year and is expected to raise the rate again next month. The increases have infuriated Trump who has consistently criticized Powell and this week blamed recent stock market sell-offs and General Motors' decision to lay off 14,700 people in part on Powell.

The report also said household borrowing is in line with household income, and that insurers have strengthened their financial position and money market funds are less vulnerable than prior to the recession of a decade ago. For those reasons, this year's hikes have made the Fed the target of unusual public attacks from Trump - criticism that has accelerated with the past month's sharp declines in the stock market.

In his NY speech Wednesday, Powell did not dispute the widely held belief that the Fed will raise interest rates again in December, saying "there is no preset policy" about tightening. The December 2019 contract has effectively removed a full quarter-percentage-point Fed hike by that time.

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