The Federal Reserve’s policy twist on Wednesday might seem just what the White House ordered, with a hold put on what President Donald Trump termed “loco” interest rate hikes, and an openness to ending the monthly runoff of up to $50 billion from the U.S. central bank’s balance sheet, Reuters informs.
But the story the Fed is telling about the economy should give the Trump administration pause, as it isn’t the narrative of rebounding investment, higher productivity, and surging growth that administration officials offer, but one of shaky confidence, an economic recovery that may not be as sturdy as it seems, and risks that partly stem from Trump’s own actions.
Just as the Fed’s four rate increases last year were a product of better-than-expected growth nudged higher by some of Trump’s policies – a sign of economic strength even if the President called it otherwise – the policy shift this week was a sign the best days of Trumponomics may be over.
The move “was not driven by a major change in the baseline,” Fed Chairman Jerome Powell said in a press conference on Wednesday, but the fact that intensifying “cross-currents suggest the risk of a less favorable outcome.”
With U.S. growth expected to slow to perhaps 2 percent and risks accumulating, “we are not in a great position to take a shock,” said Omair Sharif, senior U.S. economist at Societe Generale, Reuters adds.
Signaling a pause in rate increases “was a pretty good way to take out insurance,” in effect a decision to keep a looser-than-anticipated monetary policy in place in hopes of skirting some of those risks, Sharif said.
According to Reuters, the next few months will prove crucial – the Fed and many economists outside the administration have long felt Trump’s tax and spending policies would provide the economy a short-term boost, or a “sugar rush” that would wane.
That may now happen just as other economic dangers intensify, with an early March deadline looming over U.S.-China trade talks, negotiations over Britain’s departure from the European Union on a rocky track, and U.S. elected officials unable to agree on a budget, Reuters notes.
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