After a year of Trump pressure, US Fed struggles to communicate, Latest Business News - The New Paper

After a year of Trump pressure, US Fed struggles to communicate

This article is more than 12 months old

WASHINGTON For the first time since the Great Recession a decade ago, the US Federal Reserve is poised to cut interest rates, shoring up America's defences as the global economy weakens.

It will mark a striking about-face for the central bank, reversing a rate increase announced just seven months ago.

The policy flip comes as the central bank has suffered a number of awkward stumbles in communications, as it has tried to communicate confidence in the economy, while at the same time showing a readiness to support continued expansion.

Fed officials have had to backtrack and clarify recent statements, and amid President Donald Trump's blistering, year-long public campaign against Fed Chair Jerome Powell, one central banker seemed to offer himself as an alternative for the leadership position.

Although the rate cut this week is almost universally expected, economists disagree on whether the Fed is making the right move.

Indeed, cutting rates now could appear highly unusual. The Fed has never done so with unemployment so low.

New York Fed President John Williams, the influential vice-chair of the Fed's monetary policy committee, said this month that acting quickly to cut the key lending rate could "vaccinate" an economy against "disease" later on.

But his office later scrambled to clarify that the comment was referring to the history of monetary policy and was not a prediction of how the Fed would act on July 31.

Mr Trump pounced almost immediately: "I like New York Fed President John Williams' first statement much better than his second."

Ms Diane Swonk, chief economist at Grant Thornton, said the Fed's communication blunders did not help it withstand Mr Trump's onslaught and his demand for lower borrowing rates.

"The president might have been right for the wrong reasons because he was destroying the economy himself," she told AFP, saying the damage from the trade battles with China and others has been underestimated.

So "even when they do the right thing it looks like they're capitulating," she said, undermining their credibility. - AFP