In a brief policy statement, the Fed noted a strengthening labor market, economic activity growing at “a strong rate,” and inflation that’s reached the central bank’s target of 2 percent annual gains.
While officials saw the economic risks as roughly balanced, there was no mention in the statement of what many economists see as one of the biggest risks at the moment: rising tariffs on billions of dollars of U.S. exports and imports that have been imposed as a result of President Donald Trump’s new get-tough approach on trade.
The Fed statement did not make any mention of the rising trade tensions or of recent criticisms Trump has lodged against the Fed’s continued rate hikes. Instead, it was decidedly upbeat about the economy, using the word “strong” three times in the opening paragraph to describe various developments.
The Fed’s decision was approved on a unanimous 8-0 vote. It was little surprise, given that this meeting followed a June session where the Fed took a number of steps including raising rates by another quarter-point and changing its projection for hikes this year from three to four.
The March and June rate hikes followed three hikes in 2017 and one each in 2015 and 2016. The Fed’s key policy rate is still at a relatively low level. But it’s up from the record low near zero where it remained for seven years as the central bank worked to use ultra-low interest rates to lift the economy out of the Great Recession.
The string of quarter-point rate hikes is intended to prevent the economy from overheating and pushing inflation from climbing too high. But higher rates make borrowing costlier for consumers and businesses and can weigh down stock prices. Trump has made clear he has little patience for the Fed’s efforts to restrain the economy to control inflation.
“Tightening now hurts all that we have done,” Trump tweeted last month, a day after he said in a television interview that he was “not happy” with the Fed’s rate increases.
Over the past quarter-century, presidents have maintained silence in public about Fed actions, believing that lodging complaints would be counter-productive. That’s because it could produce even faster rate hikes if the central bank feels the need to convince financial markets that it will not yield to political pressure and allow inflation to rise to worrisome levels.
At the moment, economic growth is strong, rising at an annual rate of 4.1 percent in the April-June quarter, the best showing in nearly four years. Unemployment is at a low 4 percent, and some analysts believe it will fall further when the government releases the July figures on Friday.
But there are worries as well, led by fears of what a Trump-led trade war might do to growth in the United States and around the world.
Many analysts believe that the possible harm from rising tariffs was a key discussion topic this week. While trade was not mentioned in the statement, it likely will show up in the minutes of the Fed’s discussion which will be released in three weeks.
Delivering the Fed’s semi-annual report to Congress last month, Powell refrained from criticizing the Trump administration’s effort to use the threat of tariffs to try to lower trade barriers. But Powell noted that the Fed was hearing a “rising chorus of concern” from business contacts about the harm a trade war could cause.
Powell hasn’t publicly addressed Trump’s criticism of Fed rate hikes. But the chairman had previously said in a radio interview that the central bank has long operated independently in making interest-rate decisions based on what was best for the economy and not in response to political pressure.
© The Associated Press. All rights reserved.