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Fed is ‘like a stubborn child’ for not cutting interest rates last week, Trump says

President Donald Trump looks on as his nominee for the chairman of the Federal Reserve Jerome Powell takes to the podium during a press event in the Rose Garden in November 2017.

The Federal Reserve’s brief four-day respite from criticism by President Donald Trump ended abruptly Monday when the president tweeted that the central bank was acting like a stubborn child for refusing to cut interest rates last week.

In two tweets early Monday morning, the president said the Fed doesn’t know what it is doing.

The day after the Fed’s decision on Wednesday, Trump had sounded more or less sanguine about the Fed’s decision to hold off from a rate cut, saying you “can’t win them all.”

On Monday, the president was back to his favorite theme of his criticism of Fed Chairman Jerome Powell: that the Fed’s rate hikes and “quantitative tightening” quashed what would have been an economic miracle engineered by his tax cut plan.

In his tweet, Trump termed the Fed’s policy stance “large scale tightening” and said economic growth last year would have been above 4% or 5%, leading to “thousands of points higher on the Dow” if the central bank had behaved like other central banks.

....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)

The U.S. economy grew 2.9% last year.

Bloomberg reported last week that Trump had his lawyers review whether he could demote Powell by stripping him of his title as Fed chairman and leaving his as just a Fed governor.

Trump selected Powell for the top Fed post in November 2017 in a surprise choice. Powell was not even on early lists compiled by Fed watchers for potential replacements for Fed Chairwoman Janet Yellen.

At the time, the Yellen Fed was in the midst of a tightening campaign, having raised its short-term interest rate by 4 quarter point moves, with Powell supporting each of the decisions. At the same time, the Fed had just begun a slow, but steady, shrinking of its balance sheet by not reinvesting some of the proceeds of maturing securities.

After Powell was sworn in as Fed chairman in early 2018, he maintained the existing policy stance. The central bank tightened four more times and shrank the balance sheet by more than $350 billion.

Powell pivoted to a neutral policy stance early this year after financial market reacted negatively to the outlook for even tighter policy.

And last week, the Fed shifted again to an easing bias. Most economists think the central bank will cut interest rates at the next meeting in July.

Read: Fed holds interest rates steady — but it leaves itself plenty of wiggle room by removing ‘patient’ pledge

“It’s not inconceivable that the economic data in the weeks ahead will keep the FOMC on hold at its July 31 meeting: it’s just really unlikely,” said Lou Crandall, chief economist at Wrightson ICAP, in a note to clients.

Stocks have been higher in anticipation of stimulus from the central bank. The Dow Jones Industrial Average DJIA, +0.16% was up over 60 points on Monday after rising 629 points last week.

The yield on the benchmark 10-year Treasury TMUBMUSD10Y, -1.55% was 2.028% on Monday morning, have been north of 3.2% as recently as November.


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