Fed Signals End of Interest Rate Increases

Jan 30, 2019 · 248 comments
Ralph Petrillo (Nyc)
The Fed is pathetic. They caused the market decline and rumor has it that Putin made a fortune with shorting the market. They kept repeating that there would be more rate increases last year in 2019. Now they look pathetic worried about equity prices. Either unemployment and inflation are increasing or they are not. They can go to sleep now after causing so much destruction.
Wolfgang Price (Vienna)
“O, what a noble mind is here o'erthrown! The courtier's, scholar's, (pundit's), eye, tongue, sword, Th' expectancy and rose of the fair state, The glass of fashion and the mould of form, Th' observ'd of all observers- quite, quite down! And I, of (industry) most deject and wretched, That suck'd the honey of his music vows, Now see that noble and most sovereign reason, Like sweet bells jangled, out of tune and harsh; That unmatch'd form and feature of blown (profiteering) Blasted with ecstasy. O, woe is me T' have seen what I have seen, see what I see!” For lack of political ability to destine the nations resources into a future era of commendable (quality) existence, it yields to the Board’s artificers of interest rates and its dutiable services in achieving societal gains on utterly economic score boards. “O, what a noble mind is here o'erthrown!”
J111111 (Toronto)
A cockroach and I can find ourselves in hearty agreement if there's nothing to eat in the house, or it's crawling with spiders. Doesn't make me like the cockroach. So it is with the President of the United States and increasing interest rates.
websmith (California)
The Fed is owned and operated by banks for banks' profit. All of the money is put into the economy through bank loans and even if the Fed charges no interest, the banks still do. They make interest on every dollar spent. Its a total scam. The interest the Fed charges for its loans to banks is almost irrelevant.
rls (Illinois)
'The Fed’s chairman, Jerome H. Powell, said economic growth remained “solid” and the central bank expected growth to continue.' If that is true, then why is the Fed "prepared to slow or even reverse the steady slimming of its bond portfolio."? The truth is that the Fed is stuck with $4T in its bond portfolio from the Great Recession and the financial/economic system is so weak that it can no longer unload them on the market. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
Ma (Atl)
My understand of the Fed and the prime rates they set is a bit antiquated. Maybe things have changed. I thought their role in the US economy (only the US economy?) was to create a balance between inflation and deflation; avoiding both. When we have deflation (recession) they lower the rates. With inflation, they raise rates. No? Realize this is simplistic, but I'm thinking that the real inflation rate is much higher if necessities like food and energy are considered, but then there is the debt - both personal and public. Didn't know their overarching goal 'sustain economic expansion.' Thought the prime rate was set to maintain standard of living , again, avoiding inflation and deflation.
Bob in Pennsyltucky (Pennsylvania)
Chairman Powell has had to deal with all of these people who make a living parsing his words knowing that everything is subject to change depending on the data. He should just say that Fed policy is like curling - you start out with a view of where you want to go and bit by bit as you see results, you modify your view. Who really thinks the Fed would follow a policy without modifying it as things change? The Fed's job is difficult because it involves predictions of the future.
northlander (michigan)
A pause, not a halt.
rocky vermont (vermont)
Bernstein deserves respect. Powell and Trump deserve about as much respect as Laurel and Hardy.
Jack (Cincinnati, OH)
Part of the decision likely reflects the probability that Europe will be in recession soon due to a self-inflicted hard Brexit.
Jo Williams (Keizer, Oregon)
The sheriff got the word to all the deputies...call off the raid; let the gambling dens keep operating. Sighs of relief. And all those housing properties hoovered up during the crisis...well, we can keep unloading them. Keep the good times going. Safe investments?? Ha! Gambling is so much more rewarding.
Spurious (Florida)
I guess recession risk went way up. Are recessions bullish for stocks? Can a magic 1/4 point wave of the Fed's wand can turn around consumer and business sentiment?
WmC (Lowertown, MN)
Besides Jared Bernstein--quoted in the article--I believe a number of other left-leaning economists will express their support for the Fed's latest move. Wages had finally started to creep up, after all, inflation was below the 2% target, and China's rate of growth had slowed. The Fed's decision was unanimous. It was also probably the right one.
Mountain Dragonfly (NC)
Are we supposed to be surprised that a Trump appointee with whom he showed displeasure when interest rates were upped now says that won't happen again in the near future? I am more interested in what the body of intelligent, informed and educated economists have to say about what impact this will have on the general population than a policy that probably will help make the rich richer at the expense of the class of lower income people who are becoming reminiscent of characters in Dickens' novels.
John (Upstate NY)
Hasn't economics been called "the dismal science?" Economics wants to be a science, but it is so tangled up with the foibles of human nature that its attempts to make some sort of scientific sense and reliable predictions are ultimately doomed. Hence " dismal. " Everything about the Fed's manipulations and the gyrations of markets involve some sort of bets about what will happen in the future - something that science has not perfected.
Bob (Portland)
So the Fed comes out & says the stock market can't handle 3% short term rates, and the bond market can't handle them selling its large holding of debt. Ho-ray! Great news!.........Really? Sounds like fundamental economic weakness to me. It is only too obvious that the eceonomy is on shakey ground, & ground we have not seen before.
Paul (Brooklyn)
I don't understand these guys at the Fed. Why in God's name don't they keep their mouths shut like Mueller does? Only talk when they are. making a decision, otherwise keep quiet and not roil the markets.
SMPH (MARYLAND)
The last two hikes were un-necessary.. needless larding .. As per Mr Paul ... it is well past time we take a very close look at the Fed and while at it -- a Fort Knox take of its inventory
rls (Illinois)
God help us if there is another recession because the Fed can't.
William Carlson (Massachusetts)
Until wages increase this is necessary not because of what Trump says. The reality is we need a better system for collecting a tax on big business and small tax on small businesses, in other words graduated that includes on line companies such as Amazon into the mix.
Decent Human (Philly)
Trump had to do something to get the news cycle to be favorable to him.
Southern Boy (CSA)
This is wonderful news, especially for the housing market as mortgage interest rates will remain low. I know this angers liberals, who support Wall Street profiteering, but at this point who cares? Liberals need yo get with program! MAGA! Thank you.
Jim (NH)
@Southern Boy of course people trying to save for a house ( or those in retirement) get little or no interest on their savings account or CDs...
Prof. Jai Prakash Sharma (Jaipur, India.)
Whether the Fed decision to avoid further rate hike is dictated by political pressure or economic prudence will only be clear after a while yet its impact on the markets and the public seems t have been more or less positive.
November-Rose-59 (Delaware)
It's pretty obvious the new guy in charge capitulated under admonishment from Trump. This paltry 2.25% increase did nothing for traditional savers who depend on interest rates for extra funds to actually buy goods which in turn boosts the economy. The majority of traditional savers and investors still have to hunker down; a situation of austerity vs. prosperity.
Elinor (Seattle)
I don't know how the Fed can possibly do it's job when big-mouth Trump interferes constantly. Should we think the economy stinks, because they are too nervous to raise our historically low rates? Or, do we think they are just afraid of being yelled at by Trump, who not only obstructs justice, but pretty much every other government function to boot?
Mark (Rocky River, Ohio)
Rates were kept low for far too long. We can now expect little or no real growth for years to come. The only thing that changed with Trump was an acceleration of the transfer of wealth upward to the already rich and another trillion dollars of national debt. The Fed cannot save us from a broken tax code and skyrocketing debt that has done little to create good jobs ( we need to rebuild our infrastructure) or provide adequate social services for those most in need.
P McGrath (USA)
The Fed embarrassed themselves with the last rate bump right in the middle of the Algorithm- driven stock market plunge caused by Chinese tariff sabre rattling. The last rate bump felt more political than necessary.
gmt (tampa)
Why is this halt to rate increases signaled as a departure? When the fed began raising rates under Janet Yellen, there was much hand-wringing over whether it was too soon, and much assurance the fed would raise rates ever so slowly. Like twice a year. Yet these folks steamed ahead with double that, four times. Despite there being low to no inflation. So their departure was jacking the rates. Despite Trump's rantings and the belief the fed caved to him, it isn't off the wall to take a break and reassess. Good move, fed.
gbc1 (canada)
US fiscal policy has dug itself into a hole from which it seems unable to escape. Turning on the tap is easy, turning it off not so much. What this means is the graph of the economic cycle will not be a smooth curve, rising and falling in gentle arcs, with peaks not far above valleys and valleys not far below peaks, it will be a series of steep cliffs, plunging straight down, then rising very slowly over a long period, then plunging straight down again. So fasten your seat belts.
DJ (NYC)
Please don't be naive. Stop trusting what your elders are telling you, they can't tell you the truth. The purpose of the Fed has evolved, this is not the fed of old. It's only purpose at this point is to quietly print money and throw it out of helicopters so to speak. Backstopping the stock market is one of many ways they do this. The Fed must keep doing this in hopes of keeping the minions at bay... before it ultimately is worth nothing and we have complete lawless mayhem....about 50 years give or take.
c harris (Candler, NC)
The stock market wants to reduce their risk of a market that doesn't constantly reward them. One can see the onset of a speculative bubble that the Fed won't moderate.
Mark Q (Jersey City)
Wow, the Fed reverses course after Trump goes on the attack after the last rate increase. And it uses the possibility of another government shutdown as an excuse. A shutdown that Trump can orchestrate at his whim. Does that make the Fed a puppet of POTUS? Hmm, it’s looking more and more likely.
Rolf (Grebbestad)
President Trump should be directly in charge of the Fed. It is Trump, after all, who brought real growth back to America in less than two years in office. And also Trump who brought unemployment in the United States to record lows for blacks and Hispanics. So I'd trust Trump over Powell. And I imagine Powell finally came to agree.
Kris (Hong Kong)
I guess this is one area where Trump and Krugman see eye to eye: the fed putting a halt on interest rate increases. Seems the Fed budged.
PJ (Salt Lake City)
Is the Fed yielding to political pressure?
Andy (NYC)
He’s no Yellen, that’s for sure. But Yellen is a woman, so of course she had to go — especially in this administration. I’m reminded of the old adage that women have to be twice as good to be thought of as half as good. Just a pity that we lost such a skilled and steady hand at the helm.
Bill Wilson (Boston)
One more example of a what POTUS understands and lives by, fear is a powerful weapon. Having never really understood macro-economics or the Feds role well, this seems to me to be yet another example of brutal intimidation working well for Trump. And 40% approval is enough. Be afraid, be very afraid !!
Mister Ed (Maine)
Big mistake! Where is Paul Volker when you need him? This is a capitulation to the financial suits running the country who want perpetually low interest rates so they can leverage up the globe to enhance their personal wealth at the expense of their heirs who will have to pay the bills. As for me, I don't want to ruin the financial lives of my grandchildren to make a buck today.
Celeste (New York)
The Fed abdicated its Independence ... American workers need higher interest rates so we can safely save our hard earned dollars in federally insured bank accounts with decent rates if return. These low interest rates force working class savers into the stock market and expose our life savings to possible losses.
TK (Sacto)
It seems to me that Trump's name calling of Powell worked more than the fed suddenly finding "the luxury to be patient".
PNicholson (Pa Suburbs)
When you have a president who closes the government causing 10b in unexpected costs to a country with an already volatile market, you can’t expect the fed to keep hiking rates. No surprises here.
Anne-Marie Hislop (Chicago)
It seems that the Fed is taking a judicious approach. Easy money for a long time is not a realistic business environment. It encourages businesses to become over leveraged. In recent months there have been reports of companies which could be in trouble with raising rates because they had borrowed so much. Keeping rates near zero makes no sense, but titrating the raises at this point seems wise. The problem with maintaining lower rates is that the Fed is left with little it can do when another downturn appears - and it will appear.
RM (Vermont)
Full employment and wage increases are not bad things that need to be quashed by interest rate increases. So long as there is no inflation, interest rates should be as low as possible to finance improvements, replacements, and productivity improvements. Moreover, having interest rates higher than the rest of the world strengthens the dollar, reducing our international competitive position. Great for US overseas vacationers, bad for US manufacturers seeking export. And a strong dollar seldom cuts the retail price of imports. The importing firms keep the benefit for themselves, and seldom pass on the lower cost to consumers in the form of lower prices. The theory that we need to raise interest rates so that we can lower them in the future in the event of recession is hogwash, particularly if the increased interest rates slow the economy. That is no different than saying I should bang my head against the wall now, so that if I get a headache, I can stop so the headache will go away.
abo (Paris)
Lower interest rates mean higher asset prices. Higher asset prices mean those holding assets, which mostly are rich people, are richer. The single biggest cause of wealth inequality in the U.S. is not the lack of unions, or even low taxation rates on wealth and income. It's the Fed's policy, since Greenspan took over as Fed chairman in the mid 1980s, to use interest rate policy to support asset prices, especially the stock market. This is morally wrong, and it's bad economics.
Albert Edmud (Earth)
@abo...Following your argument, increasing interest rates would depress the assets of those who are NOT rich people. NOT rich peoples' asset valuation would approach nothing. Rich peoples' assets would be depressed also, but because they start at a much higher level, their assets would still be much greater than the NOT rich peoples'. The higher interest rates climb, the greater the disparity in wealth between rich people and NOT rich people. In your war on rich people, NOT rich people become collateral damage.
Daniel (NY)
Why does the Fed use such a broad brush when it has twelve regional banks? It can stimulate employment and wage growth in rural areas by purchasing their municipal bonds, while selling Treasuries to control inflation.
Jerry Hough (Durham, NC)
It is a fiction that the Fed is independent. Of course, it responded to Trump.
Blank (Venice)
@Jerry Hough This Fed doesn’t appear to be independent at the moment but previous Federal Reserve Boards were know to be very independent.
Albert Edmud (Earth)
@Blank...Independent of whom and what?
JT (Ridgway, CO)
I hope this is a decision on the merits. Trump's relentless badgering of the Fed to hold off on rate hikes creates the impression that the Fed is responding to political pressure, even if it is not. The suspicion causes real harm to the Fed. I hope they are very clear about why they are holding firm on rates and what might get them to increase rates in the future.
KayVing (CA)
This is just worrying, and precisely why Trump replaced Yellin with someone eminently more swayable. The Fed has now clearly shown itself to be in Trump's pocket.
Albert Edmud (Earth)
@KayVing...So? Yellen was clearly in Obama's pocket.
jhanzel (Glenview)
Even as the ability to analyze the what and how and when and where these changes might influnce the economy, we are subject to a whole lot of outside forces that even Trump can't control. The interesting part is that a stock rally for a slightly different plan causes such a quick rally. Driven by not much more than speculation, and blind computer-drive algorithms trying to make a few extra pennies per trade before anyone else can.
Mons (EU)
The fed won't stop the next depression just like it didn't stop the last one.
Mary D (Alta Loma, CA)
Inflation is alive and well. Apple juice 5.30. Cereal 5.95 a small box. I could go on. Artichoke 4.00 for one. Prices at regular market in So CA
Albert Edmud (Earth)
@Mary D...Big Blue's rate of inflation easily outstrips the overall rate of inflation nationally. Population pressure, hyper regulation and excessive taxes at work. That's the price of living in a progressive paradise. Ten years from now you'll look back nostalgically on the good old days when artichokes were only 4 bucks - and they were home grown then.
Larry Leker (Los Angeles)
It's Heisenberg's economy. The tools we use to examine it change the fundamentals of this economy. All Trump had to do to kill interest rate hikes was to threaten the world economy. This stuff is child's play!
Charles (New York)
Well that will bump Wall Street up for a couple of days. Stocks flat for 2018 and those budget items for upcoming service on the debt must be getting some attention. Meanwhile....
John (Uruguay)
By kicking down the can, the FED will keep on providing booze to an alcoholic whose help from AA is past due. Higher rates at progressive increases would help to cool down highly over-indebted sectors such as corporate and sovereign debt markets. It all comes down to human nature and in this case a recurrent and dangerous blend of greed and lack of long term perspective, once a virtue in the business world and now a relic. The risk of stagnation is lower than the explosion of a debt bubble. Maybe not tomorrow, not this year but surely somewhere down the road the can will hit the wall. And it will be leave 2007 as a mere rehearsal.
javierg (Miami, Florida)
May God forbid we are faced with an economic emergency, as the tools needed by the Fed to counter or control have not been replenished as these should have been. This is a risky approach, but as always we continue to have a short term view. Concerning. Very concernign.
J. Cornelio (Washington, Conn.)
This constant sugar-high of cheap money ain't going to end well. At least not if you mind having to tug a wheel-barrow full of cash to buy a loaf of bread. No, not us, right?
Albert Edmud (Earth)
@J. Cornelio...What's the problem? Progressives are going to give you the wheel borrow and the cash anyway. No sweat. And, if you wrench your back pushing all that cash around, you'll have great health care. In recovery, you can attend school free and get a job with a guaranteed living-high-on-the-hog salary. Relax. We're not in Weimar.
Yuri Pelham (Bronx, NY)
Powell should do a small increase in March. I took Economics 101 in 1963. That's it. Yet I seem to have better judgement than Powell. Still as with all Trump appointees he may be saying one thing and planning another. We need to slowly but effectively raise the short term rate so as to be prepared for the next recession. Remember Trump is a master bankrupter. Anyone can bankrupt a casino. To bankrupt a country will make him famous in perpetuity. And that's his schtick he wants immortality.... that is to be remembered forever. And he will succeed. Good for you, Donald. Your talent is nothing short of awesome.
prof (Colorado)
I am so distressed by the planet’s careening toward disaster that I have to object: “growth” cannot be the goal. It is unsustainable. It will be the death of us. I can’t sit by anymore seeing growth simply touted as a good thing, however much my retirement, etc., is bound up in this illogical economic model we’re now riding into Doomsday.
Machiavelli (Firenze)
Hmm. Our economy needs zero interest rates from the FED to grow & prosper? Hard on folks who want to save $$ for retirement or any other need. We used to have 10% and more interest rates. Our economy grew then too .. what happened?
Ben K (Miami, Fl)
How 'bout the rapid expansion those dandy tax cuts generated? Guess not. And then there's "tariff man". Leaving the Fed no choice but to forego accumulation of dry powder. Can't fault Powell for trying to stave off the disaster Agent Orange is actively trying to generate. Where have all the "fiscal conservatives" been? Hiding with Mitch?
Dutch (Seattle)
They are now proposing to cut the estate tax ...
Ralph Petrillo (Nyc)
Looks like there may have been leaks tied to the last interest rate hikes and the volume of selling for the Fed for months kept saying they would raise rates two or three more times in 2019 which caused a 2 to 3 trillion loss in equity prices. Wonder if Putin or any of Trumps friends was shorting? A favor to Trump for now all of a sudden they have done a 180 and are so dovish pushing prices higher. Who benefited by shorting the market as the Fed overtalked raising rates.
Ben K (Miami, Fl)
@Ralph Petrillo I believe its far worse and more direct. Tweetle Dee regularly bashes individual companies and industries, and forces share prices down with threats and intimidation on a daily basis. Do we think Kudlow and Ross are not watching? Are the Kochs and Mercers not playing along? Is the SEC monitoring their trades? Sincerely doubtful given current climate. I put nothing past these crooks, and believe their whole reason for government participation is to empower themselves to break the rules with impunity.
Pono (Big Island)
Two (of many) possibilities as to the "Trump effect" on Fed monetary policy. 1) Fed Chairman Powell directly acted on Trump's request to stop tightening. (Doubtful) 2) Powell and the rest of the Federal Reserve Board are scared to death of the many different ways Trump can manage to torpedo the economy. Bad trade policy (tariffs), extended government shutdowns, etc. An old saying about business and the markets: "The only thing you can say with certainty about markets is that they hate uncertainty" The Fed sees the chaos Trump is sowing. They see how unpredictable he is. They are being rationally cautious. Yes we have a President who is an ex-"businessman" (ha ha) who is actually bad for business in the long run and the Fed knows this.
Areader (Huntsville)
I think what the Federal Reserve is saying is Trump is about to disrupt the economy even more so we better help stimulate business.
heinrich zwahlen (brooklyn)
As someone who pays interest on credit cards as most Americans do, I welcome this announcement.
Rob D (Oregon)
At issue is not is Chairman Powell being unduly influenced by DJT, hopeful but there is a question now. For DJT to change Fed policy a majority of the Fed governing board, maybe not including Chairman Powell, must be influenced by DJT. If true it suggests a few tweets from DJT (aka victim-in-chief) put the Fed in the same orbit as DJT's around whatever mystery planet he resides.
Kathy (Chapel Hill)
Good grief. The FED caved because they are so afraid of Trump tweets and criticism!! How could we possibly conclude anything else given the forecasts by reputable economists??!! I had thought the FED was “independent,” but apparently it is now under the Trump thumb. As T might say in other circumstances, SAD!!
Bull (Terrier)
when we run out of caulking, we'll be forced to use chewing gum, or whatever...
Zorba (Denver, CO)
Procyclical policy never goes out of style. “My colleagues and I have one overarching goal,” Mr. Powell said .., “to sustain the economic expansion.”
Guy (Seattle)
The short-lived sugar high from the TCJA is over.
Paul Raffeld (Austin Texas)
Powell is doing what Trump wants. No matter how it looks, this is what happens to almost all Trump employees. Trump is the Mafia boss conducting his own businesses for his own benefit. Of course his decision was based on the market. That is Trump's main metric for economic health. If you are the head of any agency within the US government, you do what Trump wants or insults and degradation follow.
Robert O. (St. Louis)
Was Powell intimidated by not so subtle threats from Trump or was this an independently arrived at policy decision? We will never know the answer for sure. Score one more institution undermined by Trump's erratic and irresponsible behavior.
GUANNA (New England)
I would put more weight on the Fed Chairman than the fake nonsense and ill informed prattling of our chronically under informed President. Have people ever noticed Trump never explains his positions, he just states them as if they are established genius. Donny they are neither established or genius, they are tweets from our twit in chief. A man more laughable by the day.
BrainThink (San Francisco, California)
Our President doesn’t understand economics. All he understands is that he loves to claim credit for things he has nothing to do with. In his mind he’s a winner. To the rest of the world he’s a loser. This is how low America has sunk. Thanks for nothing, GOP.
Peter (New York)
VAR - Value at Risk. Why is it that nobody asks the Fed about the VAR on it's portfolio (balance sheet)? How about stress results on this portfolio? or tail risk. How about liquidity risk? If the Fed bought billions of dollars of MBS for its quantitative easing program, then there is a lot of risk in the prepayment structures, especially due to the negative convexity. Has the Fed ever released the composition of it's balance sheet, especially related to Q.E.?
Fred LeSkier (Rye, NY)
....they have no shareholders, ALCO or return projections or requirements.....I think they do a twist and swap the bills for 5s so they dont have to keep coming back to the market.
Peter (New York)
@Fred LeSkier Still, there is a fundamental problem of valuation. If the interest curve rises, so the value of the portfolio falls (ignoring negative convexity). In this case one can not tell the difference between "run off", "or buy back" vs they did nothing and the market moved. It also raises the question about what is left from Maiden Lane I and Maiden Lane II
Location01 (NYC)
About time. They needed to slow this down while unwinding the balance sheet. We had a good economy under Obama and only had what one rate raise, then all the sudden we have had what? 7 in 2 years? Take it easy it’s becoming harder for small businesses to borrow money. Banks do well on this. Home owners are losing value and that really hurts the middle class. They’re already trying hard to get ahead. Ease into it take a breather for a minute. Yellen really should have eased into this for a few years before she stepped down she kinda dumped this hard and fast.
Suppan (San Diego)
@Location01 The Federal Reserve's job is actually not aimed at optimizing economic expansion. Its job is to optimize economic stability. The fiscal side - government/congress/president/private sector - is responsible for economic expansion. The Fed is mainly a steward for sober, measured economic behavior. But it has been perverted in the last couple of decades by the High Priests of Free-Market dogma. The interest rates were reduced to near zero due to the financial crisis. The "growth" since then has been built on speculation and not true prosperity - the consumer is weak, employment numbers look rosy until you look at the details - wages are stagnant, job security is non-existent and we have outsourced most of our manufacturing jobs, etc... When a slowdown occurs, as it does in every business cycle, the Fed needs to have some cushion so they can stimulate growth in a weak environment. If the interest rates are below 3% they have no leeway to lower further. So they had to get the rates up to 5% or so when the going was good. An honest economist would tell the world that a business that cannot make it borrowing at 5%-8%, is not destined to make it anyway. The prosperous times since WWII saw interest rates for home loans well above 10%. Now the low interest enviroment has resulted in spiking the prices of those homes, while not adding real value. It is a case of what the market will bear gone mad.
Albert Edmud (Earth)
@Suppan...An honest economist would know that home loan mortgage rates "well above 10%" - whatever that means - never occurred during prosperous times since WWII. On the other hand, an honest economist never ran a business, so her opinion on 5-8% business loans is irrelevant.
Paul Schejtman (New York)
Jerome H. Powell was beaten up by President Trump who wants low interest rates to raise the price of stocks. That's good for Wall Street and rich people but sucks for everyone who wants fair interest rates for the money they hold in their bank accounts. Not Fair !
Albert Edmud (Earth)
@Paul Schejtman...What is a fair interest rate on bank accounts? I'd like 100%, but I'd settle for 50%. Why not? Banks are all rich.
Kodali (VA)
The rates should not have raised in the last go itself. Now, Trump approval ratings dropped, they want to make sure the economy will not tank before elections. The public statement may say not in response to Trump call, but in fact it is. Powell is an attorney and not an economist. With Supreme Court, Federal Reserve and Senate under Trump control, we will see all these institutions bidding Trump agenda until 2020. After that, Trump doesn’t care what they do.
Esposito (Rome)
Jerome Powell is no Janet Yellen and that's too bad. He is indecisive and reactive. He has yet determined a solid, steadfast strategy for the Fed in the post-QE era. It's okay to change ones mind. But why be so blatantly vocal about it? Watch the numbers and then raise or don't raise the interest rate at the next meeting. That's the mandate. He seems afraid of being the cause of a recession, and, therefore, would prefer to err on the side of "do no harm" which to him, at least, means not touching interest rates. That way, he can say, "it wasn't me." Hopefully, the stock market doesn't fall for it and performs according to actual earnings, not liquidity and low interest rates alone. We know how that always ends.
Alan J. Shaw (Bayside, New York)
Trump's creation of financial uncertainty, abetted by his deliberate government shutdown, may well contribute to an economic downturn. Keeping interest rates at relatively low levels may artificially and temporarily buoy the stock market, but ultimately it will reflect underlying economic conditions.
Usok (Houston)
It would be a big mistake if Mr. Powell stops raising rate simply because the stock market irrational behavior and poor performance at the end of 2018. But again he probably knows a lot more than we do on the real economy. With the oil price so low, inflation is under control. But what will happen when the oil price goes up during driving season. May be at that time, FED will reconsider raising rate again. In other words, we have about six months breathing time to adjust.
ChristineMcM (Massachusetts)
This certainly sounds as if Powell is responding with fear to presidential threats. So much for financial fiduciary independence. I'm very disappointed in the Fed Chair.
FDR Liberal (Sparks, NV)
No FED chairperson wants to be responsible for the Great Depression II or Gret Recession II. The FED mandate is not inflation or unemployment per se. It is to protect its member banks& private stockholders. All central banks have a mandate to protect their respective interests, which are protecting their stakeholders whether it is PBOC (CCP), the FED (TBTF), the ECB ( Eurozone central banks that are privately held banks), and the B o J that is publicly traded and approximately 55% government held, the remainder held privately by banks, etc. Since none of these stakeholders receive a dividend, why are they stakeholders? They can print money and the stakeholders are the first to receive the largesse of free money
JL (USA)
I listened carefully to Powell press conference, and found it deeply unsettling. He seems to emphasize the reaction of financial markets in December to his change of heart on where we are as an economy...and often conflates financial markets with the real economy. He appeared confused and somewhat inarticulate as to the clearly stated Fed mandate. Cause for deep concern. Not a convincing performance despite market euphoria.
Daniel Davis (Portland, OR)
Powell's statement that "My colleagues and I have one overarching goal: To sustain economic expansion" is not actually in-line with the mission of the Federal Reserve. Its explicit goals are to keep inflation consistently low and minimize unemployment. Economic expansion may be something that we all want, but it's a surprising change for the Fed chief to state this as his direct aim; given pressure from the executive branch the timing for such a change in tone is a bit troubling.
DJ (NYC)
We shouldn't have any income tax at all. Why tax the citizens and then the government raise the rest by printing money....just have the government print all it needs. No biggie.
Franjo Skrarko (Valley Forge, PA)
@DJ the net effect would be similar, given the same ratio of government spending to GDP that exists today, since the printing of more dollars would proportionately devalue the holdings of the wage earner.
KFC (Cutchogue, NY)
You know that would cause inflation in addition to a lot of other problems. I’m guessing you were joking?
Ralph Petrillo (Nyc)
@DJ No Trump wants no corporate taxes and no taxes on the wealthy. The rest can have their taxes raised.
Peggy Rogers (PA)
The Fed's "patient period" is akin to the classroom "quiet time" imposed by a kindergarten teacher who wants to still the rambunctious mood of little charges after recess. What else can economists do but observe while our ungovernable class clown president continues his scatter-shot assaults on the strong economy he lucked into inheriting? Trump is too ignorant to recognize and too arrogant to care how he's unpending a once-stable era with nonsensical policies leading to the likes of a trade war, the pridefully-imposed shutdown and a revolving-door of dreadful administrators whom he hires and fires at whim. He listens to no one, including the economists, because he knows everything better than anyone. Patience will not halt the spiralling damage and no amount of expertise can forecast how far down the wild child will take us.
Tom Osterman (Cincinnati Ohio)
Peggy: Thanks for the wonderful analogy and the entire comment.
Ghost Dansing (New York)
This means things were going well. Trump's policies, trade war, and overall poor leadership are putting the skids to forward momentum.
Alex E (elmont, ny)
It appears again that Trump's intuition is better than the experts' understanding whether it is economy, foreign policy, military, immigration, politics, etc. Even Fed is following him.
lynn (<br/>)
@Alex E" No, it means that a bunch of white guys of a certain age are so afraid of Trump that they are willing to make broad pronouncements about a future they (the Fed) cannot predict. Bring back Janet Yellen.
Jack (Philadelphia, Pa)
trump's "Intuition?" More like trump's "Guessing game." More likely, dare I say, the Fed changed course on raising rates because "Dear Leader" threw a hissy-fit the last time they did it.
Alexandra Brockton (Boca Raton)
So: The CBO says that 4th quarter 2018 growth will be lower because of the shutdown, and that first quarter 2019 will be lower, with an $11 billion total estimate to the negative. So: The Fed doesn't raise the fed funds rate, and says/implies no further rate increases needed, at slats for the foreseeable future. So: The stock market rallies (also because of higher Facebook and other earnings announcements). So: Trump "wins" on no interest rate hike, and Trump "wins" ---- just in January so far --- on stock market recovery from the December 2018 huge "hit", and......does Trump still "lose" on the shutdown? Hmmmmm.....I don't think so. Not from his standpoint. He can still sit at dinner and tell his friends "I just made you a lot of money" because none of them got hurt from the shutdown. In fact, they were helped. Growth, which could have caused more 25 basis point interest rate increases, was stymied enough to stop the increases but not enough to hurt his friends.
Pete in Downtown (back in town)
Another point that might have added to pressure on Powell and the FOMC to keep interest rates low: Trump administration's finances it's skewed and unnecessary tax cuts by borrowing enormous sums of money - trillions of net debt. Even a small increase in interest rates adds billions of dollars in borrowing costs, which would speed up the realization that Trump and his Republican consorts are bankrupting our country both morally and fiscally.
Daveindiego (San Diego)
Why is the Federal Reserve refusing to do their job?
David Gifford (Rehoboth Beach, Delaware)
Seems like the Fed is also now in Trump’s pocket. With continuing growth in the economy the Fed needs to increase rates by at least .5% in the coming year. None of this is fiscal conservatism. All this is to keep the stock market happy. The result will be an economy that will end up in ruin waiting for the next Democratic President to correct it. How many times does this have to happen. Wake up America.
Make America Sane (NYC)
@David Gifford Dream on. The Dems have contributed mightily to the current economic mess. Think about Clinton!!
Frank Jay (Palm Springs, CA.)
Does this mean the Feds see a huge downturn toward recession?
jazz one (Wisconsin)
"Irrational exuberance?" Cognitive dissonance? Is the Fed (at long last) kowtowing to DJT? And, Lindsay Graham thinks Roger Stone was mistreated! (Puh-leeze.) I just don't see why markets are all rosy. So much just doesn't add up or hold together, when just a few of the realities are: -- The planet is shot -- 'real' people are struggling mightily, in this Roaring '20s income inequality environment -- Indictments are flying -- Our 'commander-in-chief' doesn't believe US Intel experts In Wisconsin, Foxcon(n) just reneged on their deal (surprise, surprise. Not.) Could go on and on. How exactly does this end well for U.S., or across the globe? And how does that add up to a solid or healthy economic environment?
Wild Bill (Bloomington, IN)
@jazz one You're taking the long view. The timeframe for day traders is one day. For the bulk of the rest of the market it may extend to as long as one quarter. Beyond that? Fuhgedaboutit!
The Critic (Earth)
Hmm... The Feds haven't been able to raise interest rates much and as a result, won't have much to work with during the next financial crises. Then there was that NYT opinion piece from a Professor who thinks that our 21 Trillion dollar debt isn't a big deal. The Professor failed to take into account the 250 plus Trillion in unfunded liabilities that local and Federal government has! The good Professor also failed to consider the Global debt that has increased by over 100 Trillion in the last 20 years. He didn't say a word about the 43 Trillion household debt or the corporate debt of 66 Trillion plus. Heck, U.S. non-financial corporate-debt situation stands at 45% of GDP - a post WW 2 record! Just keep in mind... if the Feds were warm and fuzzy about our economy... they would have kept raising rates! I for one am not feeling very confident about the future and based on what gold has been doing... there are others who aren't feeling warm & fuzzy about the future either!
John (California)
Actually, they took their foot off the brake.
Terece (California )
This is not good. This means JPow is not as confident as he had been in the economy. JPow slowing down the runoff and interest rate increases combined with falling consumer sentiments portend downturn in the economy. Oh, well, at least I can look at my 401K without shuddering for once.
The Shredder (Earh)
@Terece Went to cash in all my retirements when DJI above 26,000 last year. I sleep soundly enjoying the ride from DJI ~870 in about 1982 to 26,000+ last year.
Jim (NH)
@The Shredder good move...others should follow...
Patrick alexander (Oregon)
I worked in the bond market for over 30 years, and this is one of the strangest texts of a decision I’ve ever seen. The FOMC comments about the decent growth rate of the US economy, while inflation remains relatively tame. Yet, it’s s Halting its program of measured rate increases. Even more surprising is the Fed’s slowing the rate of reduction in its balance sheet. The slow, but steady sale of its bond holdings was probably well overdue, but, progressing nicely. Now, they’ve changed that approach. What’s happened? What factors have made the FOMC members change their minds? This is quite mysterious.
Gusting (Ny)
@Patrick alexander The administration pressured the Fed, that’s what happened. And Powell caved like a house of cards.
WeHadAllBetterPayAttentionNow (Southwest)
Good. Maybe I can take a vacation this year after all. But let's just make sure that we leave ourselves enough of a pad in case of recession, which is sure to happen when we start paying off the $2 Trillion additional debt we piled up for the billionaire tax cuts.
Woof (NY)
1. Fed holdings, August 2007, $ 870 billion 2. Fed holdings, Januar 2015 $ 5 Trillion ( 5,000 billion) In the history of finance, never was printed so much money in so short a period to suppress long term interest rates In Keynesian theory, low interest rates encourage industry to invest in new production facilities, generating jobs. But industry will not do so, unless the consumers, i.e. wage earners see either higher salaries , or can borrow to spend. 1. Those who needed credit most, home owners with underwater mortgages, being non-credit worthy, could not get their hands on it 2. The credit worthy could. Mark Zuckerberg refinanced his Palo Alto home at 1 % 3. Industry borrowed , not to build new production facilities, but to buy back their own stock. If your stock pays 5%, and the interest rate is 3%, you are better off to buy back your own stock , 4. Check GM expanding in China - it invested there , not in the US (Keynes did not think of that) 5. At 10% interest, a 1 million dollar robot costs $ 100 00 a year in interest. At 1%, it costs $10 000 Thus ZIPR is an incentive trade capital for lbbour (Keynes didn't think of robots) 6. What happened to the injected money ? Being mostly captured by the credit worthy it drove up the price of assets the rich like: stocks, Manhattan real estates .. 7. So, every time, the Fed tries to deflate the asset bubble it blew, stocks wobble. 8. And then the Fed pulls back
Robert (Toronto)
Federal Reserve: The economy is "solid" Also Federal Reserve: We need a lot of time to evaluate the economy, we're not sure what's going on with it.
Bob Bruce Anderson (MA)
Powell sees the weakness in the US economy made worse by the toddler. And we don't operate in a vacuum. Worldwide growth is slowing. Sadly, though, what Americans really need is slightly higher interest rates. At this level, too much money is forced into equities as bonds pay so little. This will not end well. And then there is the fact that banks have profiteered off free money for much too long. Perhaps there should be a law that caps credit card interest at "only" twice the banks borrowing rate.
Boreal North (North)
The "real estate moguls" are getting nervous about this "solid" economy. US existing-home sales were down 10.3% in December (below the prior year). It followed a 7.8% decline in November and 5.1% drop in October. Mortgage originators are taking a beating.
marty (andover, MA)
The economy cannot be sustained by still close to $4 trillion in QE still on the books and short term rates at still near historic lows of 2.25-2.5%??? Did Powell not take note that the 10 year treasury bond has dropped from 3.27% just before the midterms to now at 2.69%, a huge drop over the past 10 weeks? And please, stop with the claim that inflation is negligible. Every service (and ours is basically a service based economy) has gone up in price by far more than the stated rate of inflation. Rents, tuition, medical premiums, medical cost, prescription drugs, healthy food....on and on. prices have risen tremendously over the past 10 years. Yes, my laptop has come down in price, but I don't buy one on a daily basis as I buy fruit and vegetables. Unfortunately Powell just put in his "put" to once again bail out Wall St. in its time of need.
Make America Sane (NYC)
@marty. Big question for Dr.Krugman to answer -- is a service economy a real economy? What do we make in the USA. Archer Midland Daniels is apparently growing their soybeans in Brazil; Apple makes everything in China; all of our aspirin comes from China Which American corporations are actually owned by the Chinese? Which entities finance Trump (he sells the name) or Kushner? Who sells New York, to whom and why?? More questions than answers and plenty of blame to go around.
oscar jr (sandown nh)
So this does not seem to me that this is good news. What Mr. Powell has indicated is that he sees the economy slowing enough to stop raising rates. That is bad news for people who save money, interest rate will not go up on savings. Some people do not like to gamble and prefer to save. This is also bad news because we just past a new tax bill that did not create a 4% GDP . What the tax cut did was make our deficit grow by leaps and bounds and that means our burden of debit is in a true crisis. Mr. Powell has indicated that the economy is slowing and that means we are in for a bumpy ride on the market. The markets gamble on the future " that is why they call it a bet " and Mr. Powell has stated the future is getting slower. So slow he is not going to raise rates or trim the balance sheet. In reality this is horrible news. We can't grow fast enough to pay for tax cuts, social security, infrastructure without going into even more debit. So trump was given a economy that was steadily bring down unemployment and a GDP at 2%. Two percent, that is not good enough said the trumpilcans well show you. We will cut taxes and the economy will take off with a 4% GDP. heck " some people are saying maybe five% " say trump. If trump can't fix his self inflicted trade war with China well then as the saying goes " look out below " The democrats will have to fix another GOP disaster.
Vizitei (Missouri)
Translation - whoa!!! we have a crazy man at the helm and no one knows what he will tomorrow, so we will at least give you some certainty here. Stable Genius!!
Slann (CA)
A pause is not an "end".
Mike S (Neponsit ny)
is this really a good thing? I guess if you live in the Trump world with short-term thinking it is. If you look at what the prospects are for the long term it is signaling a weakness. We have all seen the cycles of interest rates and they do tell the true story of the economy
semmfan (pennsylvania)
I am not sure if Chairman Powell would like it, but he will almost certainly get a great pat in the back from you know who. Would that make him feel proud? Inevitably, many people may take the cynical view that he was not ready to increase the rate in order to "please" the Prez. however undeserved it may be.
McGloin (Brooklyn)
Unbelievable. "Since 2015, the Fed has gradually raised short-term rates by simulating a scarcity of reserves: It pays banks to leave the extra money untouched'" So the Fed spent a decade giving away a NET of $3 trillion ($9,000 per citizen or $36,000 for a family of four) to global banks in free loans and the buying of their junk mortgage securities at face value, and now it is paying banks to not lend. Meanwhile, we are still being told that there is no money for universal healthcare (even though it is actually cheaper and provides better care all over the world)' investing in our children's education (even though future productivity and demand depends on it), and that Entitlements (which we are entitled to because we paid into them all of our working lives) must be slashed to pay for tax cuts for the billionaire shareholders in those very same banks. Why not make them buy back their junk bonds at face value?! Earlier in history it was necessary for the Fed to pump money into the economy through banks. That is no longer the case. Now we have the internet. It would be very easy for the Fed to increase the money supply by dividing the intended increase by 325,000,000 citizens and giving equal shares to each of us. This would be more efficient than going through banks which often do the opposite of what the Fed wants them to do, and more fair, because he money "printed" by our Treasury belongs to We the People, not global banks or their billionaire shareholders. THIEVES
i (usa)
...so Trump coerced the FED, that they folded, just like Trump did to Nancy........Just like Jed Clampett said..." Pitiful, PITIFUL..."
JL (USA)
A remarkable display of convulted logic and inarculate pronouncements by Powell. Shameful capitlaution-- Powell has blinked at Trump critiques and the Wall Street December tantrum. My goodness, the Fed is technically insolvent with $4 trillion balance sheet and they shrug it off to keep feeding the market sugar high.
Jim (WI)
Trump wanted this and it came to fruition. Time have Mueller expand his investigation to the federal reserve. Trump is being controlled by Putin. Trump is controlling the federal reserve. Therefor by simple logic......
Joe B. (Center City)
No tools left to recover from coming recession. Where is the promised 4-6% growth rate? #RepublicanConGame
allen blaine (oklahoma)
If you are not aware, the federal reserve is not federal and it has no reserves. It is a privately owned bank. Just like federal express is not a government delivery company. Only a few very wealthy families own the federal reserve. Trump has no say so in the operations of the fed. So all of the stupid comments about Trump are just that, stupid. These families also own all of the banks in the industrialized countries. They own the world bank. What does that matter?? Well, they make over one trillion dollars off the taxpayers every year and don't pay one cent on income taxes. The treasury calls the fed and says we nee one billion dollars. The fed calls the mint and has the mint print up one billion dollars in various denominations. That "money" just printed out of thin air by OUR mint is then loaned to the government WITH INTERSEST!!! Think about this now, the fed loaned one billion dollars, but they did not print up the interest money due annually. In other words, the debt owed to the feds is an impossibility to repay. The US gov. is in debt to the fed to the tune of 20+ trillion dollars. The only way to expand the money supply is through borrowing, then the question of how do you get the interest money when the fed never printed it. The fed is screwing us. Time for congress to abolish it.
Bruce Thomson (Tokyo)
They give most of their profit back to the Treasury.
VK (São Paulo)
Devastating blow to the ones who still believed in neoliberalism.
TigerW$ (Cedar Rapids)
Trump's Fed Chair was afraid of losing his job so he did his master's bidding. Trump was right about holding down interest rates. This "prosperity" is based on cheap money and ever-mounting debt. Republicans used to say this was a recipe for economic disaster but that was back when they were Conservatives and not a mixture of proto-totalitarians and radical reactionaries.
M (US)
@TigerW$ Who did whose master's bidding?
Michael Tyndall (San Francisco)
Fortunately, we have no reason to fear that an ignorant and incurious president had inappropriate influence on Fed decision making. After all, Republicans up and down the government have quickly and forcefully chastised Trump for his ignorant utterances, bone headed policies, and violations of convention. Heck, the revelation that our none of our national security leaders put forward evidence that the southern border was a national crisis immediately prompted Congressional Republicans to drop their demands for wasteful border wall funding. Instead they want to harden our electoral infrastructure and provide veto proof majorities for stalled spending bills. Not really. The Fed fears Putin, using Trump at home and Brexit abroad, will blow up the world economy. Or worse, that Trump will destabilize oil markets by sending troops to Venezuela or starting a war with Iran, just to stave off impeachment. It’s a curse to live in interesting times.
The Shredder (Earh)
@Michael Tyndall Agree. My ride from DJI 776 in August 1982 to 26,000+ was great. I am 80% treasuries.
Albert Edmud (Earth)
@Michael Tyndall...The Worldwide Threat Assessment of the US Intelligence Community presented to the Senate Select Committee on Intelligence DID NOT identify a national security problem on the US southern border....So, all good progressive patriots should march right down to San Diego and start tearing down that immoral wall. Boss Pelosi should wade right out into the Pacific surf and rip down the first steel panel herself. All the way to El Paso, ripping and rending and razing. Then, free stuff for everybody.
V (LA)
To quote our dear leader Trump: Trump on Coming Debt Crisis: 'Yeah, but I won’t be here' when it blows up. https://www.thedailybeast.com/trump-on-coming-debt-crisis-i-wont-be-here-when-it-blows-up
Janet Michael (Silver Spring Maryland)
The Fed said economic growth is "solid" and that it expects economic growth to continue- this is a tepid statement and could be construed to mean that they are afraid of a recession.If there were a strong economy they would have raised rates.It sounds as though some disquieting numbers have appeared on their screens.Happy days are not here again-this is a Fed which has become cautious because they see danger ahead.
JerseyGirl (Princeton NJ)
I'm sure you're right. That's why the market went up 450 points today.
I have had it (observing)
Tomorrow it could be down 450 points. The market runs on a moment's notice of any type of news.
Juanita (Meriden, Ct)
@JerseyGirl If the Fed had raised interest rates, the market would have gone down. So what's your point?
Martina (Chicago)
Sounds like the Federal Reserve Board, which is supposed to be an independent agency, kowtowed to Trump's "jawboning" last month asking the Board to, in effect, "prime" or boost the stock market. Although the Board can rationalize rate increases with the best of them, the Board squanders its independence by mimicking Trump's chaotic approach to government and fiscal policy.
Dc (Sf)
Appropriate move with the economy slowing and lots of signs abroad as well. Plus they have come a long way and are now at pretty neutral short rates. I'm surprised about the comment on curtailing bond runoff, that action has caused nothing bad in the bond market to date and they need to get the balance sheet down which gives them more flexibility in case things turn a lot softer.
RC (MN)
Good news for the wealthy. I guess the president does control the Fed.
Dc (Sf)
Really, that's your interpretation? I'm sure if the fed had said the opposite you would have had the same reaction. A ridiculous assertion imo and without any basis in fact.
Luis Mercado (Stockton, CA)
@RC: Shame on the Federal Reserve for capitulating on Trump's demands. That is squandering their independent financial responsibility to the country. I hope that Mr. Powell's decision to send such a signal is not just because he is afraid of Mr. Trump.
George (Toronto)
@RC - he doesn't control the Fed, but he can ruin the economy and force the Fed's hand. Tariffs, Trade Wars, Gov't Shutdown all hit the economy hard - imagine what an entire month with no income for 800K people (and their families) can do to the economy...
JG in the Heights (NYC)
Mr. Powell claims that he and his colleagues "have one overarching goal: to sustain the economic expansion." Since when is sustaining any economic expansion the primary charge of the Fed? Last time I checked it was to maintain the stability of the financial system, contain systemic risk, regulate financial institutions, and influence money and credit in order to foster stable prices and full employment. Unless I'm missing something, goosing the stock market bubble ain't in there.
FDR Liberal (Sparks, NV)
@JG in the Heights Could’agree more.However please don’t forget that the FEDs & the Treasury Dept. fianacial jujitsu on the AIG bailout without a monetary mandate and the trillion of dollars that also bailed out domestic and foreign banks under TALF and a myriad of other acronym bailouts by the FED due to collapse of collateral and shortage of Eurodollars. Where was the mandate for the Eurodollar bailout?
Steve Beck (Middlebury, VT)
@JG in the Heights, you forget that the Master's of the Universe and the billionaire elites know what is best for all of us. And I forgot those pesky Republicans. It amazes me that the more the NUMBERS/DATA prove that neoliberalism DOES NOT work, the MORE it is embraced and becomes entrenched in official policy.
Scott Holman (Yakima, WA USA)
Things are still out of whack, compared to history. Those who live on interest income are being starved, while companies have been borrowing heavily. There are many workers who have left the job market, fed up with enriching others while seeing no benefit to themselves. One of the Fed's primary tools for countering soft spots in the economy was lowering the prime rate. The world economy has come to depend too heavily on debt, and any tightening of the purse strings brings screams of pain. Some people, myself included, see the Great Recession as still in effect, masked only by illusory gimmicks. Wage growth is still too anemic, profit taking is at unsustainable levels, and investment in infrastructure is nearly non-existent. Money is being borrowed to finance stock buy-backs and dividends, instead of improvements in plant and equipment. The nation's economy must be in very poor shape if we cannot support interest levels of 4 percent. And where would the government be if the Fed had not purchased that 4 trillion dollars worth of Treasury bonds? No one else seemed to want them. The Fed was allowing the Treasury to print money at a breakneck pace. If we have to borrow heavily to survive, we are not going to survive much longer.
Cintia Hecht (Columbia, Mo.)
Agreed. The Great Recession is still alive and chugging along in California, with an economy large enough that, were it a nation, it would rank among the world’s largest. The massive inequality of wealth in California has left 1 in 4 children growing up in households of poverty. I don’t know many people celebrating the state of the economy in our nation-state of California, as beautiful as its natural wonders are.
McGloin (Brooklyn)
@Scott Holman If you were king, with the power to tax, would you ever borrow? Well guess what? We the People are sovereigns. Together We the People are the King, with the power to order our representatives to tax, regulate, and spend. That is what the Constitution says. That was the entire point of the revolution: to take the power of the purse from the 1% so instead of the 1% taxing us to spend on luxuries, we could tax the 1% to invest in our children. Why would we borrow what we should tax? It makes no sense. We charter the banks. They do not exist without Our permission, and they are immensely profitable. But instead of taxing them, we borrow from them? Why should we be giving them trillions of dollars in bailouts at the same time we give them trillions of dollars in tax cuts???!!! It makes zero sense. We pay them to lower interest rates. We pay them to raise interest rates. Then we are so impressed at their ability to accumulate wealth, even though it used to be our wealth, because workers create wealth. Bankers create debt. A bum off the street could make just as much money as Jamie Dimon of the government kept throwing trillions of dollars at him.The system is rigged. The only reason most economists never say such a thing is that most economists are paid to perpetuate this national scam, which also operates in most other nations. Again, if you were king with the power to tax, would you ever borrow? If you are against government debt, TAX THE BANKS!!!
Econ John (Edmonton )
This is perplexing. Tight labour market - inflationary. Tariffs - inflationary. Tax cuts - inflationary. Fiscal deficits - inflationary. If there was real industrial expansion approaching capacity constraints, that would be inflationary as well. The Fed had clearly been expecting inflation as a result of all of the above and more, but where did it go? Inflation is not a nothing burger (berder, sorry couldn't resist!) so if it's not hiding in the bushes there is a worrisome anomaly. Where did it go?
Australasian (Australia )
@Econ John Hiding as asset price inflation? Equities especially ? And in east coast Australia at least, via elevated property prices, though finally easing from unsustainable levels propped up by historically low interest rates.
McGloin (Brooklyn)
@Econ John Tax cuts do not stimulus investment. The only reason to increase productivity is if inventories are shrinking. Inventories only shrink when demand goes up. Demand only goes up when consumers have more money to spend. Consumers only have more money to spend when wages are rising. Tax cuts do not stimulate investment. They stimulate financial game playing, like the global derivatives casino which now has a nominal value many times the value of the actual world economy. Since Supply Side Economics was foisted on the American People, average GDP growth has gone down. Average growth was 40% higher under stagfation than it has been for two decades. And since the great recession Euros has been talking our advice and slashing taxes and public services, and their economies are healthy stagnant, even though they have negative interest rates (which is close just mage bankers richer). The entire world economy has become a sponge that the super rich keep ringing out zero they can play king off the hill of money, while the other $7 billion of us are told to fight over the scraps. There is no inflation because the billionaires keep taking cash out of the economy. One more time: rising wages creates rising demand which creates shrinking inventories which stimulates investment. Tax cuts do not stimulate the economy. They stimulate betting on the global derivatives market. When rising worker productivity is not shared with the workers, the real economy cannot grow.
sixmile (New York, N.Y.)
Is there another example of the Fed allowing policy to be dictated by politics rather than economic analysis -- in this case, by the threats and bullying of a know-it-all-know-nothing POTUS?
Bill (NYC, NY)
When Trump was a candidate he complained that the Fed was keeping interest rates too low but once he became President, the shoe was on the other foot and he started complaining that the Fed shouldn’t raise rates. Either way, this is both bad governance (keeping the Fed outside the political discourse is essential to the markets) and bad policy (Trump the very stable economic genius anyone?). Since the economy has remained strong it is hard to argue that, it is hard to argue that the Fed has raised rates too much (but try telling Trump that since the markets have weakened). Since inflation remains low, it is hard to argue that we need higher prime lending rates right now, so maybe cooling off is the right thing. However, if inflation starts to get out of control, if may be hard to get it under control and we may regret not raising rates a little further now. Let’s just hope that Chairman Powell is making his decisions unconcerned of comments by the cry-baby in chief.
ceg (san francisco)
I am sick to think Trump will take credit for this shift in policy, which certainly does not benefit average Americans and sets us up for trouble down the road. Is Chairman Powell reacting to pressure from the president - because if so, we need to question him further and find out his real thoughts. He was acting independently and should act independently of POTUS. I want an economic policy that helps raise wages and benefits for average workers, and allows a reasonable return on savings accounts and CDs, which the vast majority of Americans use to save for homes, retirement and life events. It seems this move will just continue to enhance economic disparity, and could very well help re-elect the worst leader on the planet right now.
Mike S (Neponsit ny)
I agree with you but God I hope you are wrong
Make America Sane (NYC)
@ceg It's an international market-- as Foxcomm has indicated. Instead of raising salaries how about lowering costs? Cauliflower 7$ a head; greens 4$/lb? Why do prices have to increase? Increasing wages simply means that the CEOS will raise prices yet again. Americans need to stop supporting the so called d consumer (I call it garbage) economy. Buy quality, not quantity, eat less in most cases. Drive less, if possible. Make as much of your own stuff as possible. You really don't need a new cellphone every two years. If you are young, you really do need to save for retirement, because, the GOP and Wall Street are circling the wagon train -- in this case Social Security and Medicare. I don't think I live in either a civilized first world country or a democracy. (Apparently, it's called a republic -- whatever that is?)
David Gregory (Sunbelt)
Amazing how the drama queens of Wall Street reacted when the Fed decided to turn off the tap of free money and let rates return to historic norms. If the economy is as good as all the talking heads on CNBC/Fox Business/Bloomberg and elsewhere keep telling us, why are the banisters and traders so afraid of normative interest rates?
Lightwaves (ca)
The fed is being browbeaten by Trump it seems. What a 180 degree turn around by the fed in a couple of months. So zero real interest rates are considered neutral these days? Unbelieveable. When the next recession or crises hits the US economy, what tools will be left. Lowering these meager interst rates has been made ineffectual. At the same time, we are running $1 trillion deficits as far as the eye can see. How will we pass fiscal stimulus with this red ink. This has become a huge risk!
Laura Mulholland (Cocoa Beach, Florida)
Too bad. I guess Powell's more afraid of Trump than he led us to believe.
Doug Lowenthal (Nevada)
@Laura Mulholland The Fed has 2 roles, controlling inflation and keeping unemployment low. The Fed doesn’t want to push us into recession, regardless who is President.
Rolf (Grebbestad)
President Trump has been telling the Fed for months to stop their crazy interest rate increases. I'm glad they finally decided to listen.
McGloin (Brooklyn)
@Rolf There is nothing crazy about normal interest rates in a growing economy. What's crazy is paying banks to lower interest rates, then paying banks to raise interest rates. If interest rates for banks are already close to zero when the economy is booming, what will the Fed be able to do to loosen money when the economy shrinks? Throw more trillions at global banks? We have made cash so cheap for global banks, that we cannot just tighten credit anymore. We have a world full of amateur economists that keep quoting Econ 101 (a simplistic intro course) and professional economists paid to lie about the economy so that their employers can steal from us. I have a degree in Math and Economics, and a Master's in Political Science, but I don't work in economics. I have just followed economics for fun since I read Adam Smith thirty years ago. This is not what the father of economics had in mind. Read Adam Smith. He was against profits, which he called rents, the product of crony capitalism as Republicans call it. Adam Smith explained that the labor saved through the division of labor created "gains from trade," but those are not profits. Profits are the result of market imperfections. Tax cuts for capital is not market economics. It is crony capitalism. Classical economics was a real logical inquiry backed by data. Neoclassical, Neoliberal, neoconservative Supply Side Nonsense is the throwing out of logical inquiry to make the rich richer at any cost. Read Adam Smith.
Johan Debont (Los Angeles)
Trumps mafia style threats and bullying to the Fed made them afraid and like many others in government, they became cowards and caved using blatant lies as arguments. No matter that the low interest rates only will benefit corporations, the very rich, who want to keep using that cheap money for irresponsible take overs with over time will bankrupt these companies and guess who will suffer then. Trump again made the rich, richer and Congress gets bypassed again, asleep at the wheel. The Mafia triumphs again.
Thomas (Philadelphia )
"Lying rides upon debt's back." ~ Benjamin Franklin
Jim R. (California)
This is most unfortunate, and looks to me like the Fed caved to the rantings of a dysfunctional White House. With rates this low, the Fed has limited ability to manage the coming recession, which is a virtual certainty. The Fed needs to get over its post-2009 hangover, and re-establish its abilities for the future...regardless of the rantings of the president.
Thomas (Philadelphia )
How your comment is not a NYT pick is astounding. Sometimes the fireman can get there in time to save a burning home, then sometimes they can only contain it and watch it burn to the ground. We are watching the US Economy burn to the ground and most americans have no clue.
Brian B (Durham, NC)
Did you think the economy was erratic in 2018? Just wait for 2019! All the hallmarks that led up to 2008 are about back in place!
Jim (Washington)
Very sad...Trump got to Chairman Powell...ever expanding corruption.
Mr. Bill (Albuquerque)
So this isn't stepping not the brakes, it's returning to the accelerator. Poor choice of words in the headline.
McGloin (Brooklyn)
@Mr. Bill Yes and side when is loosening the money supply "cautious?"
Sarah Pesin (New York)
I really like this article.
Pete in Downtown (back in town)
Let me get this straight: the Fed doesn't want to increase interest rates back to historic levels because the economy is doing so well? Usually, leaving interest rates as low as they are (below historic averages) is done due to concerns that the economy is slowing down. I wonder if the Fed has learned any lessons from Greenspan's great blunder in the early 2000s; flooding the economy with overabundant cheap money provided the fuel for the real estate bubble that brought us the great recession. Will it be a stock market bubble this time?
Mort Dingle (Packwood, WA)
@Pete in Downtown China is slowing down, that is the fear?
Pete in Downtown (back in town)
@Mort Dingle China slowing down is probably a factor, but I believe the real elephant in the room is what will happen in 2019/2020; the underwhelming stimulus effect by the enormous and unnecessary one-time big tax cut (mostly for the wealthy) while the economy was already going strong is already wearing off, and now there isn't much more powder left in that keg to fire another volley when needed. And, just like Greenspan, the current Fed chair now appears to put ideology and loyalty to his appointing president over sound judgement, and tries to keep the music playing until the election in 2020. The risk he takes is that, if trouble comes before then, there isn't much left the Fed can do. Lowering rates is hard if you start out low already.
Pala Chinta (NJ)
Stock market up again? The rich will get richer and everyone else will continue to suffer, which appears to be the real platform of the administration and the senate. Lots of part time jobs at minimum wagecwith no health insurance are still available, though.
Robert Stacy (Tokyo)
@Pala Chinta. You could invest in stocks. Maybe the system is rigged but you are not restricted from playing.
confounded ( noplace)
Are you suggesting that anyone who has investments in the stock market are rich? I'm in the private sector and have no pension plan other than my 401k. So yeah, I like it when the market goes up. Because of Trump's eratic domestic and foreign policies he is causing detrimental second and third order effects on our economy that the fed did not anticipate. The economy means more than just the job market. The fed did the right thing.
Bill Wilson (Boston)
@Robert Stacy if two thirds of Americans are unable to find ~$500 in cash for an unexpected emergency how might they "invest in stocks" ? Or maybe Wilbur Ross was sort of right, maybe furloughed government employees should have just day-traded to cover household costs while they waited for their delayed check. From Davos to DC to Seattle seems like our political and business leaders really are out of touch with the real world of the 99%.
Mike (Denver )
Sluggish inflation? They must be talking about pay raises.
Richard (New York)
No interest rate increases = strong US economy = Trump re-election. 2020 will be like 1984, when Mondale was trounced.
myself (Washington)
@Richard What fantasy world do you live in? There has never been a worse president, and the people know it. Just have a look at the polls.
Rolf (Grebbestad)
@Richard Yes, especially if Schultz runs. Trump will be reelected in a total landslide.
Stephen (Saint Louis, MO)
@Richard 1. The strong economy hasn't been able to push Trump's approval above 50% so far, why would that suddenly change? 2. Like 1984? What world are you living in where you think there is a chance that anyone from any party could win 49 states? 3. If you were thinking of the popular vote margin in 1984, what signs are you seeing that Trump could win by 18%? Reagan was fortunate enough to have the economy shifting from bad to good while in office. Right or wrong, many people gave him credit. Trump came into office with an already good economy and hasn't done anything to change its course and create a boom . You may point to raises in various stock markets, but stock markets aren't the same thing as the economy. If they were, then one would have expected the economy to shrink in 2018. Trump is no Reagan. Reagan wasn't even the Reagan you like to imagine existing.
JoKor (Wisconsin)
Trump's next tweets will be to praise Powell & the Fed for doing what he's been telling them they should be doing for the past year...Trump has claimed it's been the Fed's actions that have caused any damage to the economy. It has to be very difficult for the Fed to act independently when Trump foolishly tries to manipulate them by blaming them for any drops in the stock market and blames them for higher interest rates, expecting they should remain at "0" throughout his tenure, just to help his own bottom line and political position.
Armo (San Francisco)
@JoKor And, the fed chair doing exactly what trump wants.
Bull (Terrier)
Hope the young people are paying attention. The mountain of wonder is continuing to grow! It's just amazing what these humans have accomplished.
mark (boston)
It kills me that Trump will naturally think it was his influence and pressure on the Fed, and especially Powell, that made them decide to cut back on rate hikes when it was, in fact, the economic data they review that is the sole influence in their decisions.
Jim (Washington)
@mark wishful thinking...
Bob (Pennsylvania)
Finally, a Fed Chairman who realizes that whenever he/she opens his mouth many billions are at stake, and that he/she is, in fact, THE most powerful person on the planet.
Joe Barnett (Sacramento)
This is the calm before the storm.
Allen (California)
And I thought the FED operated independently. Creepy when the FED Chair seems confused about how the economy is doing.
Derek (Iowa)
Gee, big surprise: Trump shuts down the government for a month and now the fed is taking a "let's see what damage he did to the economy before we do anything else" stance.
MoneyRules (New Jersey)
Powell will rue the day when he has no arrows left to fight the next recession.
New World (NYC)
Normal rates should be around 5% Treasurys are yealding around 2.5% Inflation is around 2% Net income for savers is a pitiful HALF A PERCENT Am I missing something? Crying all the way to the bank.
Graham (Boston)
@New World - you're forgetting taxes, brokerage fees... break-even is a best-case for savers
DRS (New York)
So I guess Trump was right.
scientella (palo alto)
Wow. So now even the Fed dhair is beholden to keeping his job over what is right for the global economy.
Mike (CT)
More Trump interference.
Princess Leia (Deep State)
There was a method to Trump's shutdown madness: he caused the Fed to cease raising rates; this was his real agenda.
Jim (NH)
does the Fed work for Wall Street?...savers continue to get horrible interest on savings accounts and CDs...
Metrojournalist (New York Area)
@Jim The Fed works for the big banks. It's not supposed to, but then, a lot of things are not the way they're supposed to be.
Joseph (Los Angeles)
Can't we just go back to trading bags of salt?
Stephan (Home Of The Bill Of Rights)
Blatant market manipulation by the bully-in-chief bullying the Fed. Trump = Fake, phony, fraudulent
avrds (montana)
The problem with a statement like this is that it is hard to determine who is speaking -- the Fed leadership or Donald Trump -- since Trump interferes with so many so-called independent agencies. Is it the case that the Fed won't raise rates or change course because the economy is strong, or because the economy is weakening and is going to need all the help it can get, or because if they do raise rates again they have to contend with Trump's annoying tweets? Fed statements are notoriously opaque, but in the current climate it's even more difficult to parse what's really going on. I guess we'll have to wait for the next round of presidential tweets.
drlot55 (Middletown, RI)
Let’s call them inglorious tweets; they are certainly not “presidential!”
Ralph Braskett (New Jersey)
@avrds: The FED moved carefully in response to our economic situation. Managing to employ more of our people, but not over acting to create jobs and even more debt, for 35 & under citizens to pay off over the next 20 to 30 years..
John A. Figliozzi (Halfmoon, NY)
So we have a Fed that’s going to play politics — Republican politics — instead of safeguard the integrity of the economy. It’s decidedly bad policy to expand the money supply during an economic expansion already artificially sustained by a sugar high tax cut. It compounds the problem necessarily created to avoid a depression a decade ago. Now that that situation is ameliorated, the Fed should have continued what it had correctly been doing to restore stability. This change of course will not end well.
Ensign (U.S.)
The Fed’s statements today encourage more risk in already overheated markets while preventing those of us who aren’t interested in gambling away their assets from earning a reasonable rate of return from interest. There is a massive amount of pain awaiting those plowing more of their assets into the roulette wheel that is global markets. And the double zero that few even mention is the crushing federal deficit.
javierg (Miami, Florida)
@Ensign Very well said. Massive amount of pain.
Yuri Pelham (Bronx, NY)
Yes the federal deficit. Also credit card, college, medical, mortgage debt. The fall, when it comes, will be to quote Trump " amazing". Massive inflation awaits us.
Woof (NY)
How the Central Banks could safely wind down their positions built up with QE has worried economists since QE started. The oscillatory interest rate policy of the Federal Reserve starting and stopping QT shows how difficult this is and that the Federal, 11 years later, still do not have a thought out plan on how to achieve it That is worrying. And there is a mountain of debt out there, generated by ZIRP As a fellow economist observed : The US economy was fine in 2008. What was not fine was the US financial system - the safe guarding of which is the responsibility of the Federal Reserve
Bruce Rozenblit (Kansas City, MO)
The global economy is slowing. This latest move by the FED indicates that they fully realize what is going on in the world. We will settle back to growth rates of 2 to 2.5% and be thankful if we can sustain that. And all we have to do was add about one trillion dollars to the deficit to get back to where we were.
Ray Stantz (NJ)
The markets may consider this good news, but there seems to be a tacit admission that "secular stagnation" is the norm. To take on this much public and private debt to stimulate so little growth that is not self-sustaining is very very worrisome.
Yuri Pelham (Bronx, NY)
That's why my pension plan at age 73 does not contain one share of any stock. The crash is coming. Like the parachute jump at an amusement park. Up, up and then the exciting rapid decent to earth. I can't wait.
MCH (FL)
Judging from the market's reaction, this was the right move and President Trump was absolutely correct. Moreover, now with rates stabilized, home buyers can make plans and buy their homes.
Cindy L (Modesto, CA)
Only a fool would buy now with prices this high.
I have had it (observing)
So the people who already own a home dont get interest on our savings?
Thomas (San Diego, CA)
@MCH The market reaction will always be favourable to not increasing interest rates in normal times. Finance 101 tells you that the value of a given stock should be the discounted cashflow from that given stock. What do you discount with? The cost of capital? What is a component of the cost of capital? The risk-free rate. What is the main component of the risk-free rate? The Fed discount rate. Lower discount rates, higher discounted cashflows and higher stock prices. President Trump's "wisdom" played no part in this. It is like pulling a lever for the Fed.
Mikeyz (Boston)
The delight for Trump only comes in the form of short term gains. If the economy was truly sound small raises in the interest rates wouldn't move the needle in the market or public perception.
Socrates (Downtown Verona. NJ)
Obstruction of justice... Obstruction of Treasury... Obstruction of immigration... Obstruction of healthcare... Obstruction of a functioning government... I wonder what our Obstructer-In-Chief will obstruct next. All's fair in a lunatic dictatorship.
DRS (New York)
@Socrates - despite your insinuation of conspiracy, there is no indication that the fed is making decisions on anything other than the data.
Socrates (Downtown Verona. NJ)
@DRS Perhaps, my lord, but the Impostor-In-Chief's repeated public Tweet attacks on the Fed are inappropriate, unseemly and thoroughly unPresidential. https://www.cnbc.com/2018/12/24/trump-resumes-attack-on-the-fed-as-markets-sink-again.html
Joe Paper (Pottstown, Pa.)
@Socrates Remember it was said by the Prezzz...that " you have to feel the market ". Powell felt it alright. Another win for Trump.
Mark Thomason (Clawson, MI)
What they say does not match what they do. They say the economy is strong. They do what they'd do if they were developing real concerns about that. What concerns? Many of course, it is an uncertain area. But their actions bring it all down to one action at one moment. That action is not the "strong" conclusion.
Girish Kotwal (Louisville, KY)
It is sensible for Fed to not signal future rate increases in 2019 as they did a few weeks ago. It was improper to have signaled the likely rate increases in 2019 without knowing what the economic situation would be when such rate increases are announced in advance.
Nick Metrowsky (Longmont CO)
Back on 24 December, the Fed gave opposite news, Apple had a massive drop, and US/China trade talks were going nowhere we saw a major drop in the market wiping out any gains fro 2018, and the S&P nearly dropped 20% fro the year. Fro a 1/2 trading day; it was Black Monday. Today, Apple is doing very well, the Fed says no interest rate hikes for the near future and the US/China are talking on a trade deal. While today, will certainly add to gains, over the past month, it also says that Trump policies have created a great deal of uncertainty and stability. Recent polls show that a vast majority do not like the way the country is heading and have a negative approval of Trump (just over 2/3 of those asked). One has to take today, with caution, but hopefully we have more stability. Also, let's hope we do not see another government shutdown, and that the oligarchs/1%/GOP finally reign in Trump. It is amazing how much the President of the United States affects the domestic an d world economies, and the stock market. For those who hated President Obama, at least one thing was clear, he was not a one man wrecking machine.
Yuri Pelham (Bronx, NY)
No but he was allied with the Wall Street banksters thus setting us up for another economic catastrophe.
Rima Regas (Southern California)
"Reinforcing this cautious tone, the Fed also announced that it stood ready to slow or even reverse the diminution of its bond portfolio. This, too, marked a striking shift" We weren't ready for a recession in 2016 from the fiscal and monetary perspectives. Back then, we were talking about the zero lower bound and how, as things stood, the Fed couldn't increase the interest rates fast enough because of the employment situation and the fact that there was still too much slack in the employment picture. At this point in time, there is still slack in the employment market, even though we've since added hundreds of thousands of jobs and we have reached what was thought the optimal percentage of employed Americans in our economy. That thinking has changed and economists no longer view 4% as full employment. For one, people are working multiple jobs to make ends meet. Second, workers in their 50-60's, who lost their good jobs to the Great Recession, STILL haven't been hired back in their professions. Since the Tax Scam Bill and the rollbacks in virtually every area imaginable, we are far less ready now to absorb another big hit than we were in 2016. Would Trump go for a stimulus package for millions of unemployed? Food stamps? Cash benefits? I don't see Trump doing the right thing, no matter how many million find themselves hungry, cold, and on the nation's streets --- Things Trump Did While You Weren’t Looking [2019] https://wp.me/p2KJ3H-3h2
Ellen (San Diego)
@Rima Regas I doubt Trump would go for any sort of stimulus help for the millions of unemployed, under-employed, or unhoused. It would contradict his narrative that he is MAGA.
Rima Regas (Southern California)
@Leia Words from a Ron Paul gold standard fan? All countries in this entire planet, in one form or another, manage their monetary policies through a central bank. Ours, which is still considered the biggest economy, can print money and prop the economy as needed in bad times. There is absolutely nothing wrong with that when fiscal policy is set to match. At this point in time, a year after the Tax Scam Bill, we are going in the opposite direction, with fiscal policy, in essence, having removed the throttle and bleeding the treasury dry, in order to set the flow of money to the richest Americans. The money the Fed manages is ours. That money is there to protect us in times of need and ensure we all have jobs, among many necessary things. The economy is supposed to work for everyone. Trump and his GOP are robbing us as we speak.
Latest
See also