Donald Trump took aim at the "faulty thought process" at the Federal Reserve, weighing into a controversy over a speech from the New York Fed president that sent markets reeling.
The New York Fed took the unusual step on Thursday of clarifying remarks from its president, John Williams, which had stoked expectations of a 50 basis point cut later this month. It said the speech was "academic" and not a guide to short-term monetary policy.
Trump, in a string of tweets advancing his attack on the US central bank, said: "I like New York Fed President John Williams first statement much better than his second. His first statement is 100% correct in that the Fed 'raised' far too fast & too early," Trump tweeted.
The US president, who has been pressing for rate cuts, told the Fed: "Don't blow it" and claimed there was "almost no inflation".
In his second Twitter attack on the Fed this week, he wrote: "Because of the faulty thought process we have going for us at the Federal Reserve, we pay much higher interest rates than countries that are no match for us economically."
"In other words, our interest costs are much higher than other countries, when they should be lower. Correct!", he continued.
Trump also called for an end to "crazy quantitative tightening", adding: "We are in a World competition, & winning big, . . . but it is no thanks to the Federal Reserve. Had they not acted so fast and "so much," we would be doing even better than we are doing right now. This is our chance to build unparalleled wealth and success for the U.S., GROWTH, which would greatly reduce % debt. Don't blow it!"
The probability of a 50bp rate cut this month dropped back to 44 per cent following the clarification, compared with 66 per cent following Williams's speech, and a 40 per cent chance before he took to the stage.
Fed chairman Jerome Powell signalled in early June that the central bank stood ready to cut interest rates, saying it would "act as appropriate to sustain the expansion" amid the economic impact of escalating trade disputes.
In lunchtime trade in New York, the yield on the policy-sensitive two-year US Treasury was up 2.4bp at 1.80 per cent, while that on the benchmark 10-year Treasury rose 0.8bp to 2.05 per cent.
Trump has regularly lambasted the Fed and Powell for raising interest rates, potentially holding back economic growth, and mused about removing the chairman.
In recent weeks he has also accused a host of countries of being currency manipulators and threatened to levy sanctions on them, and has repeatedly cited the dollar's strength in a bid to put pressure on Powell to cut rates.
In his speech on Thursday, Williams laid out the case for easing monetary policy in a low interest rate environment sooner rather than later, and said a neutral interest rate — the rate that neither stimulates nor depresses the economy — could be as low as 0.5 per cent.
A few hours later, a New York Fed spokesperson cautioned against reading too much into the comments, saying: "This was an academic speech on 20 years of research. It was not about potential policy actions at the upcoming FOMC meeting."
Written by: Peter Wells and Richard Henderson
© Financial Times