Jerome Hayden Powell, member of the Board of Governors of the Federal Reserve System, defends the normalization process followed by monetary policy by the Federal Reserve (FED) of the United States.
Powell has come out in defense of the process, for the attacks and criticisms against the strategy of the FED made by the President of the United States, Donald Trump. In recent weeks, Donald Trump has made harsh criticism of Powell’s monetary strategy.
We can ask ourselves: What are Trump’s arguments to overturn the monetary policy of the Federal Reserve?
Although Powell has defended the strategy of the FED, at the same time has indicated that the FED will be less aggressive than expected, as he said that interest rates are just below what is considered a neutral position in the economy .
This statement may justify a specific relaxation, until a pause, to assess the situation of the US economy. On Wall Street they see feasible a new increase in interest rates during this month of December but then the FED should clarify what will happen.
Powell said that the economy is increasing because of the trend. The growth during this year in the United States has been of 3 percent, and the unemployment is located in the 3.7 percent, therefore, the unemployment continues being in low levels with a constant growth.
Therefore, Powell has found that there is no pre-established course and that decisions are guided by the data seen in the US economy.
Donald Trump campaigns with the decisions of the FED
Donald Trump has made many comments charging against the strategy that is following the policy of the FED, these attacks began in summer. Donald Trump has admitted that he is not happy about naming Powell to head the Federal Reserve.
The main argument for commenting on this is that the interest rate increases are an obstacle to the economic plan that the Trump administration has underway. It also considers that it affects volatility in financial markets.
Many of the financial experts have understood these complaints as an electoral campaign, which was looking at the legislative to measured mandate.
In contrast, Powell insists that the price of money increases aims to prevent the economy from overheating by an excess of stimuli. At the same time, Powell guarantees that the process of normalizing interest rates will be gradual and will be based on the data available to them.
Trump, for his part, says that they are wrong because of what his instinct says. Trump, as he changes more than underpants, until now he liked Powell and did not want to interfere in the decisions of the FED.
But Trump’s style is to play with the language, has even said that the leaders of the Fed are crazy and that interest rates should be reduced for the good of the United States, although this affects the independence of the Reserve. Federal.
Another reason is for a comment by Powell made in October in a speech, in which he indicated to the markets that they are not close to a neutral position.
Since then, the stock indices have been in constant movement in areas of correction anticipating a more aggressive policy despite Powell is usually cautious with the projections or the course of US policy.
Powell held the position of the FED in February of this year. In its term of office, three increases in interest rates have been made, and a new one is expected at the next meeting in mid-December.
The interest rates in the United States are from September 2018 between 2 and 2.25 percent. The comments of the members of the FED that is already close to the point of equilibrium in which interest rates neither stimulate nor restrict the economy.
The outlook is pointing to a moderation in growth when the effect of fiscal stimuli passes. The global economic slowdown, geopolitical tensions and the Trump battle at the level of tariffs are also a great drag.
There is a pressure on the valuation of assets is rated upward although the FED points out at the same time that there is a tolerance of the risk of investors is higher. For its part, Wall Street bet more for one or as many 2 increases in interest rates.
Powell is a pragmatic person and he is aware that stress in the markets can cause him enough problems, for this reason, he has tried to give guarantees that his strategy seeks to give a balance, that is, he will go very fast but he will not go very slow, because you can create other distortions unwanted by anyone.