Fed to hold fire despite White House call for rate cut: Report, Latest Business News - The New Paper

Fed to hold fire despite White House call for rate cut: Report

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The Federal Reserve is poised to hold its fire this week, leaving benchmark US interest rates untouched as central bankers await firm indications of where the world's largest economy is headed.

But as policymakers gather for their third meeting of the year tomorrow, President Donald Trump is still hammering the Fed members, demanding they lower interest rates. He also made plans to fill Fed vacancies with political loyalists to help get his way.

White House economic advi-ser Larry Kudlow said last Friday last week that the surprisingly strong growth in the first quarter of the year could "open the door to a target rate reduction in the months ahead". But he hastened to add that he respected the Fed's independence.

In addition, inflation "is coming in way below their own benchmark", he told CNBC, referring to the central bank's 2 per cent target, while its most-watched measure has remained stubbornly slow, coming in at 1.3 percent in the first quarter.

Fed chairman Jerome Powell has steadfastly defended the central bank's independence and made it clear officials will base their decisions on economic data.

After four increases in the benchmark lending rate last year, the Fed has signalled clearly it would not raise rates this year. And given the strength of recent data reports, a rate cut could seem counterintuitive.

But some economists still think the next move will be a cut.

The minutes from last month's policy meeting show members of the rate-setting Federal Open Market Committee believed their policy stance could "shift in either direction", at least raising the possibility of a rate cut at some point.

Futures markets appear convinced the committee will feel compelled to lower rates at least once in the next nine months. As of Friday, odds were at 20 per cent it will be cut as soon as June.

In recent media interviews, Mr Richard Clarida, the Fed's vice-chairman, and Mr Charles Evans, president of the Chicago Federal Reserve Bank, acknowledged rate cuts could become necessary. But with Wall Street hovering at record levels, unemployment below 4 per cent and job creation holding steady, economists said that for the moment, the central bank is sticking with the pause announced in December.

Mr Ian Shepherdson of Pantheon Macroeconomics said the blockbuster first-quarter gross domestic product (GDP)could put rate hikes "back on the agenda" if it continues through the year.

But other economists said the 3.2 per cent growth recorded in the January-March period hid signs of weakness, such as falling imports, weak consumption, rising inventories and poor business investment.

Ms Diane Swonk, chief economist at Grant Thornton, said the GDP estimate was "a lousy 3 per cent" that masked warning signs in its details and came amid perpetually soft inflation.

In March, a closely watched measure of consumer inflation hit its slowest pace in 13 months. And the Fed's preferred gauge, the "core" personal consumption expenditures price index, has not exceeded the Fed's 2 per cent target in seven years.- AFP