President Trump is once again pushing the Federal Reserve to cut rates, comparing Chair Jerome Powell to a “golfer who can’t putt” in a Wednesday tweet. Just days ago, in a tweet, he urged the Fed to cut rates by “at least 100 basis points.”
But the president also needs to convince the other members of the Fed’s Open Market Committee to make that move. And Michelle Girard, chief U.S. economist at NatWest Markets, says the Fed itself may be split over the path to take on interest rates.
“I think it’s quite possible you have a very divided committee,” she told Yahoo Finance’s “The First Trade.”
“You have a real spectrum of opinions. You’ve got those who are worried about the economic outlook and who want to continue to preemptively cut interest rates to provide insurance against that potential risk of a recession,” Girard said. “And you’ve got others, like [Boston Fed President Eric] Rosengren, who we heard from this week, who feel quite comfortable with the current state of the economy.”
In an op-ed in the Financial Times, Minneapolis Fed President Neel Kashkari argued that a rate cut is necessary next month, and that the central bank needs to use its forward guidance “to provide even more of a boost to the economy than a rate cut alone can deliver.”
Doing great with China and other Trade Deals. The only problem we have is Jay Powell and the Fed. He’s like a golfer who can’t putt, has no touch. Big U.S. growth if he does the right thing, BIG CUT - but don’t count on him! So far he has called it wrong, and only let us down....— Donald J. Trump (@realDonaldTrump) August 21, 2019
“If the global economy continues to weaken and the trade war between the U.S. and China intensifies, the Fed could find itself cutting rates aggressively,” Kashkari wrote. “It would be better to deploy guidance now in an effort to avoid hitting zero.”
Girard agreed that investors want to hear a clear message from Powell when he speaks at the Fed’s annual symposium in Jackson Hole, Wyo. on Friday.
“Expectations are high,” she said. “If he doesn’t at least tip his hat to recent developments raising downside risk, you could have a setback” in stocks.
“What we’re hoping is that when we hear from Fed officials, in the wake of the escalation of the trade war, in the wake of the inversion of the yield curve, that they will seem more open to lowering interest rates, but that may not be the case,” Girard said. “That would be a disappointment for markets who want the confirmation that this Fed is going to be acting aggressively in the coming months.”