Monetary policymaker Neel Kashkari wants to make one thing clear. Neither he nor his colleagues in the Federal Reserve are swayed by President Trump’s tweets when it comes to deciding the fate of short-term interest rates. The president and CEO of the Fed Bank of Minneapolis was featured in an interview at the Yahoo Finance All Markets Summit, where he defended the Fed’s independence and its recent decision to slash interest rates by a quarter percentage point. His boss, Fed Chairman Jerome Powell, has come under fire by the president for not doing more to stimulate the economy, and policymakers are in a no-win situation as any move they make can be construed as either trying help or hinder the president.
Kashkari was quick to diffuse any suggestion that the Fed is influenced by the president’s tweets and cheered his peers for basing monetary policy on facts and analysis while “ignoring the politics,” adding:
“If we took action just because political leaders asked us to, we would not be doing our jobs. If we resisted them and did the opposite of what they want just because they’re asking for it, we would also not be doing our jobs. So the best thing we can do is focus on data and analysis and make the best decisions we can based on what we think is right for the economy.”
The president would probably agree that the Fed has not been playing into his hand. If he had it his way, the rate cuts would be coming fast and furiously. He is looking for a “rate-cutting cycle which would keep pace with China, the European Union, and other countries around the world.” Instead, he has a divided Fed including some members who see no need to ease rates at all despite the uncertainty surrounding the trade war coupled with a slowing global economy.
Even if not intentional, Kashkari’s dovish stance echoes the president’s view that the economy deserves the tailwind of easy monetary policy.
“My message is clear: we should be supporting the economy, not tapping the brakes on the economy so I want to look at the data over the next few months but so far I am happy that we’re cutting interest rates,” said Kashkari.
Fed Easing Can’t Last Forever
When the Fed convenes once again at the end of this month, all bets are that it will implement another rate cut. TD Securities Head of Interest Rate Strategy Priya Misra is cited in The Wall Street Journal as saying October’s move is a “done deal” and warning:
“Markets may be disappointed by the Fed not giving any more sign of any cuts…They are already talking about ‘When should we end easing.’”
We can already see the tweetstorm clouds forming.