Global markets fall ahead of US Federal Reserve interest rates decision

Economists expect the Federal Reserve to raise interest rates another quarter-percent when it meets Wednesday. President Donald Trumps protests the anticipated action calling it'incredible and'foolish

Global markets fall ahead of US Federal Reserve interest rates decision

"Take the victory!" Trump wrote on Twitter yesterday. "I don't like all of this work that we're putting into the economy, and then I see rates going up, I see China where they're - I mean look at what's happening with their currency, it's dropping like a rock".

Some economists are predicting, however, that the decade-long improving US economy could stall in the next year or so and perhaps even fall into a recession, which, if it occurs, would in most circumstances call for cutting interest rates to boost economic activity.

US President Donald Trump said on Monday that it is "incredible" the Federal Reserve would consider raising interest rates on Wednesday amid all the problems in France and China. Why is he urging it not make "another mistake" by raising interest rates to keep inflation in check at its policy meeting on Wednesday?

The Fed began gradually shrinking its balance sheet in 2017 after inflating it to more than US$4 trillion by buying bonds to fight the financial crisis and revive the economy.

After a cumulative 1,000-point drop in the Dow on Friday and Monday, Trump seized on an editorial in the Wall Street Journal that called on the Fed to be "prudent" and put a long-signalled rate rise on hold. Many economists also expect additional increases next year although at a slower pace.

Having raised interest rates with steady regularity in recent months, the Federal Reserve may embrace a new message this week: Flexibility.

The main concern: a reversal of the Fed's massive holdings of U.S. Treasurys and mortgage-backed securities - accumulated during seven years of quantitative easing - could pull liquidity from an economy already at risk of recession.

A few hours later, White House trade adviser Peter Navarro amplified that theme, calling the Fed "crazy" for having signaled, as it did in September, that it would continue to raise rates next year.

"I just don't think of it", said Mary Daly, president of the San Francisco Fed, in an appearance last week on PBS NewsHour.

Some argue that the only impact Trump is having on the Fed is to make the central bank more likely to hike since the Fed doesn't want to appear to have lost its independence from politics.

Even though the Fed has shed over $370 billion in assets since starting the great unwind, the balance sheet still sits at a gargantuan $4.0 trillion. The former Hewlett-Packard CEO said Trump's comments are "wholly inappropriate" for any US president.

Powell himself could provide clarity in his news conference if he indicates where he thinks the "neutral rate" is.

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