President Donald Trump announced that the inflation data released on Tuesday was very good and he used that to call on Jerome Powell again to a “significant” reduction in interest rates.
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However, the Reuters agency stipulates that these data indicate that U.S. prices continued to rise in Decemberso financial markets expect the Fed to leave interest rates unchanged.
Considering that inflation remains above the Fed's target, lowering rates could cause the economy to “overheat”, inflation will begin to riseand then – through interconnected financial systems – will move to other countries, where central banks will have great difficulties in controlling it.
“Undermining confidence in the Fed may lead to instability in global financial markets and, over time, may scare investors, which will translate into a crash on Wall Street,” describes Reuters.
- Read also: Inflation in the United States. Is the effect of Donald Trump's tariffs visible?
Rule by the “visible hand”. Reuters on Donald Trump's actions
Reuters calls Donald Trump's economic policy is governed by the “visible hand”, which is a reference to Adam Smith's theorythat the “invisible hand” of the free market contributes to overall material well-being.
The agency estimates that Trump's increased pressure on the Fed and other attempts to manually control the economy such as the proposed reduction in credit card interest rates, or the government's purchase of bonds linked to mortgage loans to reduce the cost of such loansis an offensive by the administration undertaken with the upcoming midterm elections in the US in mind.
Trump counts on this if voters perceive his policies as designed to lower the cost of living, Republicans will have a greater chance of winning congressional elections. Reuters emphasizes, however, that such “popular” electoral policy does not mean sound economic policy in the long run.
- Read also: Trump raises tariffs on China. “Extremely aggressive stance”
Jerome Powell is not alone. The world shows support
Earlier, the heads of the central banks of nine countries and the European Central Bank (ECB) and the Bank for International Settlements defended the president of the Federal Reserve and the independence of the institution he heads in a joint statement.
Shortly thereafter, one of the most influential financiers in the US, JP Morgan Chase CEO Jamie Dimon said that “everyone believes in (the need for) Fed independence” and he has “great respect” for Powell.
Read also: 11 central bankers defend the Fed chairman. Who signed the letter?
Jerome Powell himself announced on Sunday that federal prosecutors are investigating him for allegedly giving false testimony to the commission examining the costs of renovating Federal Reserve buildings. He accused Donald Trump's administration of using the investigation as an excuse to attack him over the Fed's decisions on interest rates.
