Fed Policymakers Offer Mixed Outlooks

The week began with U.S. President Donald Trump saying he was “not thrilled” with the Federal Reserve under his own appointee, Chairman Jerome Powell, for raising interest rates. He further added the U.S. central bank should do more to help him to boost the economy.

“I’m not thrilled with his raising of interest rates, no. I’m not thrilled,” Trump said, referring to Powell.

The U.S. Dollar spiked lower on the news with the headlines reading that Trump’s comments triggered the break. Trump was once again scolded by the press for criticizing the Fed a second time.

Fast Forward to Friday….

While all eyes were on Fed Chair Powell ahead of his speech at 1400 GMT before a group of central bankers’ at the symposium in Jackson Hole, Wyoming, Cleveland Federal Reserve President Loretta Mester raised her outlook for the economy and gross domestic product for 2018, adding that the central bank’s plan for gradual interest rate increases is appropriate.

“I’ve been upping my forecast. I’m now at 2.75 percent to 3 percent for the year, probably closer to 3 percent,” Mester said. “I think that the fiscal policy – the stimulus and tax cuts – has been a positive for the economy in terms of demand growth and so that’s one of the factors.”

“But also there’s been more momentum in the economy than I might have anticipated,” she added.

Sounds like an endorsement for the President’s economic policy, but we know the Fed can’t say that.

Bullard Doesn’t See Much Inflation Pressure

St. Louis Federal Reserve President James Bullard does not want the central bank to raise rates again this year.

“If it was just me, I’d stand pat where we are and I’d try to react to data as it comes in,” he said Friday in an interview with CNBC. “I just don’t see much inflation pressure. … I just don’t think this is a situation where we have to be pre-emptive.”

Bullard said he’d focus on inflation data and inflation expectations to change his views. Currently the numbers are not pointing to “much inflation,” he noted in the interview.

Bullard seems to back President Trump in not wanting to raise rates, but of course, he has no say. He’s a non-voting member of the policymaking Federal Open Market Committee.

This Time, Powell Crushes the Dollar

Trump contributed to the dollar’s weakness during the last hour of trading on Monday by criticizing the Fed. On Friday, Fed Chair Powell drove the dollar lower by suggesting the Fed funds rate was getting closer to neutral.

I’m still waiting for the headlines to read “Powell Crushes the Dollar”, but I’m not holding my breath because the financial press likes it better when Trump does it, it sounds more negative.

U.S. rates aren’t going to go up forever, and neither is the U.S. Dollar. As the Fed comes closer to ending its rate hikes, and the other central banks start to raise rates especially the European Central Bank, the dollar will eventually weaken.