Federal Reserve to Plough on with Rate Hikes amidst Trump Criticism and Trade War Escalation…


Earlier this week the Federal Reserve released the minutes from their last FOMC meeting in July which struck a similar note to communications issued by the Bank for International Settlements two months ago. The BIS warned of the growing threat of the U.S. sparking a trade war with China, but at the same time called for central banks to continue raising interest rates.

Two months on, the Fed are ratcheting up their own warnings of how a trade war is now the biggest threat to the U.S. economy. But amidst those warnings, they maintain that it will ‘likely soon be appropriate to take another step in removing policy accommodation.’ They are also planning to remove the word ‘accommodative‘ from future FOMC statements in regards to monetary policy, meaning that further rate hikes and cuts to the balance sheet are being telegraphed in advance.

Expanding on their concerns over a trade war, the Fed stated that,

in the event of a major escalation in trade disputes, the complex nature of trade issues, including the entire range of their effects on output and inflation, presented a challenge in determining the appropriate monetary policy response.

With the evidence at hand and judging by the Fed’s actions and statements during Donald Trump’s tenure as President, the response will be to implement steeper rate hikes more rapidly than the majority of analysts / economists currently consider possible, with the primary excuse being that the trade war is pushing up the rate of inflation.

Whereas the Fed and other central banks tolerated inflation above the mandated 2% target in the years following the ‘Great Financial Crisis‘, the important distinction to make is that the trend at the time was for banks to remain accommodative and be the backstop supporting the global economy. This has now shifted decisively to banks tightening interest rates and QE programmes and placing the 2% target for inflation back at the forefront of their policy.

For the Fed to revert back to slashing rates to 0% and resume asset purchases, they would effectively be taking ownership of a geopolitical crisis that Trump initiated. The same logic applies to the Bank of England and a potential no deal Brexit. 

At some point, the realisation will come that central banks can no longer be relied upon to prop up the financial system. And rather than it being they who will be held to account, the general population is being conditioned to accept that the actions of Donald Trump and the ramifications from Brexit will be the cause of a renewed economic downturn.

The recovery narrative fashioned by central banks since 2008 was built upon deceit. Without monetary accommodation global markets and economies will find themselves in crisis. This, I would contend, is why the advent of Trump and Brexit are to the advantage of globalists rather than to their detriment.

CNBC: Fed officials worry that the trade war poses the biggest threat to ‘strong’ economy

  • Federal Reserve officials see ongoing global trade tensions as the biggest threat to otherwise strong U.S. economic growth, according to an account of the central bank’s most recent meeting.
  • Officials said it would “likely soon be appropriate to take another step in removing policy accommodation,” an indicator for a looming rate hike that is widely expected by markets.
  • There was a notation that the term “accommodative” to describe policy likely will be removed “fairly soon” from post-meeting statements.

Reuters: Trump demands Fed help on economy, complains about interest rate rises

  • “I’m not thrilled with his raising of interest rates, no. I’m not thrilled,” Trump said, referring to Powell. Trump nominated Powell last year to replace former Fed Chair Janet Yellen.
  • “We’re negotiating very powerfully and strongly with other nations. We’re going to win. But during this period of time I should be given some help by the Fed. The other countries are accommodated,” Trump said.

Sky News: China files WTO complaint as US escalates trade war

  • The United States and China have imposed a fresh round of tariffs on an additional $16bn (£12bn) of each other’s goods.
  • They follow last month’s first round of tariff increases of the same size by both sides on $34bn (£26bn) of each other’s imports – taking the total to $50bn (£39bn).

Reuters: ECB must not delay rolling back stimulus – Weidmann

  • “It’s also time to begin exiting the very expansionary monetary policy and the non-standard measures, especially considering their possible side effects,” Weidmann told reporters.
  • “This normalisation process will probably take place only gradually over the next few years. That’s exactly why it has been so important to actually get the ball rolling without undue delay,” he said.

BBC: Brexit deal referendum should be on the table, says Sir Keir Starmer

  • A new referendum on a final Brexit deal should be “on the table”, shadow Brexit secretary Sir Keir Starmer has said.
  • Sir Keir told BBC Radio 4’s Today programme that although Labour is not calling for a second public vote, if MPs reject the deal the PM puts forward, “all options” should be open.

Bloomberg: BOE’s Unanimous Rate Hike Has Economists Projecting Two in 2019

  • A survey of 31 economists by Bloomberg shows the majority expect the benchmark rate to reach 1.25 percent by the end of 2019, a quarter-point higher than in the July survey.
  • “The difficult thing is Brexit,” said Victoria Clarke, an economist at Investec in London. “But we’re not expecting a big shock. That gives the BOE reassurance to push forward.”

Bloomberg: Italy’s Giorgetti Hopes ECB Quantitative Easing Will Be Extended

  • Italian Cabinet Undersecretary Giancarlo Giorgetti said he hopes the European Central Bank’s quantitative easing program will be extended to help protect the country from financial speculators.
  • The ECB under President Mario Draghi has “carried out a very important function these last few years,” Giorgetti told the newspaper. “I hope that the quantitative easing program will go forward.”

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