Trump: Federal Reserve ‘Doesn’t Know What It Is Doing’

The Federal Reserve may have reassured financial markets by all-but promising to ease monetary policy at its next meeting but it has not pacified its foremost critic–President Donald Trump.

The Fed “doesn’t know what it’s doing,” Trump said via Twitter on Monday morning.

The Fed held its target interest rate steady at its June meeting last week but signaled to markets that it was prepared to cut rates if inflation stayed low and economic growth continued to slow. The Fed has said that it wants to extend the economic expansion and is not looking to slow down the economy.

….Think of what it could have been if the Fed had gotten it right. Thousands of points higher on the Dow, and GDP in the 4’s or even 5’s. Now they stick, like a stubborn child, when we need rates cuts, & easing, to make up for what other countries are doing against us. Blew it!

— Donald J. Trump (@realDonaldTrump) June 24, 2019

The Fed said that the biggest risks to economic growth in the U.S. are now coming from a slowing economy around the globe and heightened trade tensions. Fed officials worry that U.S. businesses could hold back on investment if they are uncertain about trade policy.

The economy grew at a 3.1 percent pace in the first quarter of the year but has slowed down in the second quarter, judging by most economic reports. Manufacturing production has shown signs of sluggishness, although it is still growing, and housing remains a weak spot in the economy. Consumer sentiment and spending, however, remain strong.

At the core of Trump’s dispute with the Fed is the growth potential of the U.S. economy. His administration thinks the economy can grow at a 3 percent rate without undesirable inflation. Indeed, they after say they are aiming even higher. The Federal Reserve thinks the long term growth rate of the U.S. economy is about 1.8 percent and growth above that is viewed as being “above potential” and risking inflation rising too high.

This difference about potential growth leads the Fed and the president to advocate for different monetary policy. The Fed will seek to make sure growth doesn’t fall below 1.8 percent and may allow monetary policy to remain loose enough to grow slightly faster but will not intentionally seek to push growth above that level. That puts it at odds with the Trump administration’s fiscal and regulatory policies, which are aimed at pushing growth to 3 percent or higher.

Last year, the Trump administration juiced growth by cutting taxes and slashing regulation. The Fed, however, raised its target interest rate four times. That set up the clash between the Fed and the White House that Trump continued Monday.