Federal Reserve's Quarles upbeat about economy; rate policy on steady course

Screenshot  FOX Business

Members of the Federal Open Market Committee, which determines the Fed's monetary policy, didn't bother to discuss comments made by Trump warning against further increases in the central bank's benchmark interest rate, according to minutes of the September 25-27 meeting released Wednesday.

Rising interest rates may reach a level that matches U.S. President Donald Trump's relationship with the media.

"This is consistent with the Fed's rhetoric that they will continue to gradually raise interest rates".

It was a rare economic analysis from Quarles, the Fed's Vice Chair for Supervision. They signaled they see at least three more rate hikes as necessary in 2019.

On the other hand, while risks were 'roughly balanced, ' some Fed members said instability in emerging economies - many of which are heavily indebted and vulnerable when United States rates rise - could 'spread more broadly through the global economy and financial markets'.

NO: The Fed is an independent body and they are making decisions on what they think the market can handle.

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Fed officials raised rates by a quarter percentage point last month to a range of 2 percent to 2.25 percent and updated quarterly forecasts that showed them on track to hike again this year - most likely in December - and push rates to 3.4 percent by the end of 2020.

Minutes from the Fed's latest policy meeting showed board members expect to hike borrowing costs as the world's top economy goes from strength to strength and inflation picks up. Neutral is the level of interest rates judged to be neither accommodative nor punitive to the economy. Shanghai's benchmark index closed at a near four-year low and China's premier warned of risks to the economy.

Fed officials also noted that USA trade policies remained a "source of uncertainty" for the outlook for US growth and inflation, citing US tariffs on aluminum and steel as reducing new investment in the energy sector. If and when that happens, my sense is that the president will be thankful for the Fed. He added that productivity could well break above a 1-per-cent average growth rate in recent years owing to investments in technologies and a possible rise in labour participation.

The Fed directly controls only short-term interest rates. He said the Fed is moving too fast and did not want the economy to slow. Raising rates is the Fed's way of lowering the risk of runaway inflation, which happens when competition for labor and a shortage of goods in a fast-growing economy leads to big increases in wages and prices.

"I don't believe that President Trump's comments will change what the Fed is doing", she said.

"If there are emergencies that affect the exchange rate, the Treasury has this bank account to the New York Fed that they're allowed to use to send trade orders through the Fed", Richardson explained.

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