White House Pushes Fed Towards Negative Interest Rates (#GotBitcoin?)

Kudlow says Fed should cut rates half a percentage point to protect against slowdown in global economic growth. White House Pushes Fed Towards Negative Interest Rates (#GotBitcoin?)

President Trump wants the Federal Reserve to cut interest rates to guard against a slowdown in global economic growth, a top White House official said Friday, revealing concern about the durability of the U.S. expansion.

National Economic Council Director Lawrence Kudlow told The Wall Street Journal in an interview they would like to see the central bank lower its benchmark federal-funds rate by half a percentage point, which would put it in a range between 1.75% and 2.00%.

Mr. Kudlow said he believed rates needed to be cut “as a precaution.”

He noted as a concern the recent bond-market rally that has pushed long-term yields below short-term yields, a so-called inversion of the yield curve that tends to predict interest-rate cuts and has preceded recessions by one or two years.

“I don’t want any threats to the recovery. I’m aware of the inversion of the yield curve, and I’m aware of the rest of the world’s weak economy,” he said.

Despite the unusual public pressure the White House is putting on the Fed to cut rates, Mr. Kudlow said the administration respects the independence of the central bank’s decision-making authority.

“They’re going to do what they’re going to do,” Mr. Kudlow said. He said he was simply communicating what the president has been saying in private conversations about interest rates. “It’s his view…. It’s our view. And, by the way, we’re not alone. A lot of people in the market believe it.”

Mr. Trump tweeted later Friday that U.S. gross domestic product and stock prices would be “much higher” and “World Markets would be in a better place” if the Fed had “not mistakenly raised interest rates” and shrunk its bond portfolio.

The Fed last year said it needed to raise interest rates to guard against the risk of a boom-bust growth cycle. During his campaign for president in 2016, Mr. Trump said low interest rates risked fueling a market bubble.

The call for a rate cut by a White House official is unprecedented in recent history, and appears at odds with the administration’s insistence that the U.S. economy is on course for another year of robust growth, thanks to its tax and deregulation policies.

A Fed spokeswoman declined to comment.

But Minneapolis Fed President Neel Kashkari, in a Journal interview Friday, responded to Mr. Kudlow’s statement by saying, “I don’t think we should be overreacting to short-term economic data. We can introduce uncertainty and introduce our own volatility” by overreacting to fluctuations.

Mr. Kashkari said current economic data didn’t suggest rate cuts were warranted. “I’m not opposed to rate cuts, but I want to see more evidence that there’s actually economic weakness justifying it,” he said.

Fed officials last raised rates in December to a range between 2.25% and 2.5%, but they indicated last week that rates may be on hold for the foreseeable future, amid slowing global growth and uncertainty about trade policy.

The Fed also announced this month that it would slow the pace at which it is shrinking its $4 trillion asset portfolio starting in May, and end the runoff of its Treasury holdings at the end of September, exactly two years after it began the process.

Mr. Trump has bucked a convention in which the White House, in recent decades, has avoided publicly weighing in on monetary policy.

Last summer, Mr. Trump’s advisers initially played down the president’s criticism of the Fed, saying that Mr. Trump was simply expressing a view. But over the fall, his comments turned more pointed, and Mr. Trump has faulted his advisers, especially Treasury Secretary Steven Mnuchin, for recommending that he pick Jerome Powell in November 2017 to succeed then-Chairwoman Janet Yellen.

In December, Mr. Trump repeatedly said the Fed shouldn’t raise rates and should halt its portfolio runoff. The Fed raised rates and didn’t change the runoff plan at that meeting.

Mr. Trump’s advisers issued statements in late December to assure rattled markets that Mr. Powell’s job was safe after Mr. Trump fumed privately about Mr. Powell and wondered aloud if he could fire the Fed leader, people familiar with the matter have said.

Because Mr. Powell has repeatedly said he plans to serve his four-year term as chairman and wouldn’t resign if asked, any effort by the White House to remove Mr. Powell could land in court.

Mr. Kudlow hedged his response when asked if Mr. Trump was still upset enough with Mr. Powell to consider attempting to remove him as chairman. “No, well,” he said. He paused and added, “I don’t want to comment on that. Those are private conversations. I’m going to leave that.”

Mr. Kudlow helped arrange a dinner last month between Messrs. Trump and Powell at the White House residence. They were joined by Mr. Mnuchin and Fed Vice Chairman Richard Clarida.

Mr. Kudlow’s comments Friday echoed remarks made by Stephen Moore, Mr. Trump’s latest pick for a Fed board seat.

When asked on Monday if the central bank should cut rates by a half percentage point to reverse its increases in September and December, Mr. Moore said that should be “under consideration” by the Fed.

Shortly after the December rate increase, Mr. Moore delivered a scathing assessment of Mr. Powell in a Journal interview, calling him “totally incompetent” and saying he should resign. Mr. Moore walked back those remarks this week, but said the rate increase was still a mistake.

Mr. Kashkari said the labor market’s performance in the months ahead would be particularly important in assessing the economy’s health. Employers added just 20,000 jobs in February, down from the 186,000 monthly average over the past three months.

“If we see two or three jobs reports like the last one where job growth really has ground to a halt, I would take that very seriously,” said Mr. Kashkari.

Fed officials this week have generally pushed back against the bond market’s rising expectations of a rate cut.

Earlier Friday, Randal Quarles, the Fed’s vice chairman for bank supervision, endorsed the central bank’s current wait-and-see stance but said, “my sense is that further increases in the policy rate may be necessary at some point.”

Fed officials have consistently said they make their decisions independent of politics. Still, the White House’s statements about interest rates have created doubts among some market participants about whether the Fed is reacting to political pressure, in part because the central bank’s change in its policy stance in recent months took them by surprise.

“Powell will do what the economy needs independent of political whims,” said Diane Swonk, chief economist at Grant Thornton. But the White House’s interest-rate commentary “is beyond poor form,” she said. “It’s already eroding [the Fed’s] credibility” among people who don’t appreciate well the Fed’s non-political approach.

Updated: 12-10-2019

Powell Eyes Revamp of Fed Inflation-Targeting Framework

Fed chairman wants to avoid Japanese and European economic experiences.

When Fed Chairman Jerome Powell took office in early 2018, his assignment seemed straightforward: lift interest rates to a level consistent with a moderately growing economy, aided by a burst of stimulus from tax cuts and federal-spending increases.

Today, his mission is altogether different. The worry haunting Mr. Powell is that during and after the next downturn, the Fed will get stuck in the same trap of sinking inflation, near-zero interest rates and a limited ability to generate stronger growth that swamped Japan last decade and Europe this decade.

A market backlash to the Fed’s final rate increase one year ago marked a turning point. Officials raised rates four times in 2018 to guard against the risk of rising inflation or financial bubbles, but they cut rates three times this year to cushion against a potential slowdown as growth cooled abroad and the U.S.-China trade war sowed uncertainty at home.

If the U.S. economy avoids a downturn in 2020, Mr. Powell’s principal assignment will be to forge agreement on a broader revamp of the Fed’s rate-setting strategy. He has led his colleagues to debate a change that would encourage inflation to run above the central bank’s 2% goal for certain intervals. While seemingly modest, it would be notable for a central bank slow to make such changes. Had the policy been in place earlier this decade, the Fed probably wouldn’t have raised rates as much as it did in recent years.

Fed officials seek 2% inflation because they see it as consistent with healthy growth. The problem is that inflation has mostly held beneath the target. Officials fear this could cause consumers and businesses to expect weaker inflation, becoming a self-fulfilling prophecy.

Mr. Powell has his work cut out for him. Some officials have said they don’t see why the Fed should be troubled by small misses from their target.

With costs for college, health care and housing on the rise, Mr. Powell said in a speech in Providence, R.I., last month, “nobody seems to be complaining about overall inflation running below 2%.” White House Pushes Fed,White House Pushes Fed,White House Pushes Fed,White House Pushes Fed,White House Pushes Fed,White House Pushes Fed,

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