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The Fed Gathers and Trump Takes Aim at the Fed - August 1, 2018

The Federal Reserve’s two-day meeting concludes Wednesday.

  • There is virtually no chance of a rate hike.

  • Odds heavily favor a 0.25 percentage point increase in the fed funds rate to 2.00-2.25% at the September meeting (CME Group).

  • The Fed appears to be on track for another rate increase in December.

Will the Fed signal a more aggressive stance?

Thoughts—

  • The U.S. economy is expanding quickly, but…

  • There’s no press conference following the meeting; so, the Fed has no platform to explain a change in posture.

  • Fed officials are more likely to telegraph possible changes between meetings, including via its minutes released in three weeks.

  • The Fed may want confirmation that Q2’s strong GDP number isn’t a one-time fluke.

Trump’s Twitter barrage

President Trump recently attacked the Fed in a CNBC interview for raising interest rates and followed up his criticism on Twitter.

His public remarks were unprecedented in that presidents have historically avoided public criticism of Fed policy, respecting the Fed’s independence.

Might public pressure from Trump dampen Fed rate-hike enthusiasm?

  • Doubtful. In fact, to assert its independence, it could cement the Fed’s forecast for two more rate hikes this year, barring an unexpected economic slowdown.

Trump’s tweets may have another purpose. If growth were to unexpectedly stall, he would point his finger at the Fed.

@LWMLLC