The Fed has a lot to talk about besides higher interest rates

Presidential influence. A trade war with China. Rising interest rates. Recession-proofing o...

Posted: Sep 26, 2018 2:09 PM
Updated: Sep 26, 2018 2:09 PM

Presidential influence. A trade war with China. Rising interest rates. Recession-proofing of US banks.

Those are just some of the topics Federal Reserve Chairman Jerome Powell is likely to face at a press conference on Wednesday after the Federal Open Market Committee concludes its two-day policy-setting meeting.

Policymakers gathered in Washington this week are expected to raise the benchmark interest rate by a quarter of a percentage point for the third time this year, to a range of 2% to 2.25%.

The rate hike is widely expected by investors. What's not as well known is how the Fed is contending with risks to economic growth, including the ballooning trade war and rising oil prices, or with President Donald Trump's desire to keep rates low.

What's more, in recent weeks, Fed officials have appeared publicly divided on how fast the Fed will need to act next year and beyond.

The central bank has penciled in a fourth rate hike later this year, then three more in 2019 and one in 2020. Analysts will be watching for any possible changes when policymakers update their forecast on Wednesday.

Defending the Fed's independence

All eyes will be on Powell, who will have an opportunity to respond publicly to Trump's criticisms about the Fed's policies.

Over the summer, the president took the rare step of repeatedly going after his Fed chair, who he said was undermining America's competitive edge against China by raising interest rates.

Since Trump took office, the Fed has raised rates five times, including twice this year under Powell. The Fed is gradually raising rates as the economy gains strength.

"I'm not thrilled with his raising of interest rates, no. I'm not thrilled," Trump, who appointed Powell to lead the central bank, said during an interview with Reuters in August. "I should be given some help by the Fed."

Presidents have historically avoided commenting on the Fed's policies. The central bank is designed to be independent from political interference.

The Fed hasn't commented on the president's criticism. But Powell expressed a deep commitment to the central bank's independence during an interview with American Public Media's "Marketplace" radio show in July.

Fighting off trade tensions

Fed officials are already worried about how the trade war may affect the US economy. But as tensions rise, how is the Fed calculating and planning for those risks and uncertainties? That's the question investors want answered.

Policymakers have said a "major escalation" of trade disputes could speed inflation and cause businesses to pull back on investments, according to minutes of their July meeting. Such turmoil, participants noted, could reduce household spending and disrupt companies' supply chains.

So far, Powell has been publicly cautious about the impact that trade tensions could have on wages and capital spending.

"We don't see it in the numbers yet, but we've heard a rising chorus of concern" about businesses scaling back plans for capital spending, Powell told lawmakers in July. He also said it's challenging to forecast the economic impact.

Since Powell said that, the Trump administration has followed through on its threats to impose a 10% tariff on $200 billion in Chinese goods, on top of other tariffs levied on China earlier this year. The most recent level is set to rise next year to 25% if the trade impasse is not resolved.

Efforts to restart talks between the world's two largest economies have also waned, adding to uncertainty about how long the trade fight will continue.

More rate hikes in 2019?

It depends on whom you ask. Policymakers are divided over whether the Fed will need to raise rates next year faster than it has forecast.

Some officials, like Fed Governor Lael Brainard, have argued that the recent tax cuts and a spike in government spending will further heat the economy and require higher interest rates over the next year or two.

Others say that as long as inflation sticks to the Fed's target of 2% — the level it considers healthy for the economy — the Fed should take a slower approach.

"We think there is a good chance the dot plots may shift and show a Fed more willing to raise interest rates than previously expected," Brian Gardner, an analyst for investment bank Keefe, Bruyette & Woods wrote in an analyst note, referring to the Fed's forecasting tool.

In August, Powell defended the Fed's strategy of raising rates gradually at a conference in Wyoming. He said it keeps the economy on even keel, as long as inflation is stable and unemployment continues to fall.

Still, investors will be scouring updated economic projections for any hints about whether that thinking is changing.

New policymakers, new forecasts

The Fed's updated economic forecast will have a new wrinkle.

Fed Vice Chairman Richard Clarida will join the FOMC meeting for the first time. And former Fed President William Dudley has retired. The central bank's outlook may shift with a new lineup.

This week's forecast, which will update economic projections for 2018 through 2020, will also include 2021 for the first time. Wall Street is watching especially for clues about rates over the long term.

Preventing a financial bubble

For the first time, Fed officials are also weighing whether to trigger a mechanism that would require banks to hold even more capital as a buffer against a financial calamity.

The regulatory tool, created under the 2010 Dodd-Frank Act, requires banks to pad their balance sheets with additional capital during good economic times to help soften the fallout in periods of hardship.

It's never been used before, and banks don't want to see it take effect. But Fed officials are debating whether to push forward to lessen the likelihood of another financial crisis.

Powell hasn't weighed in, but the subject might be hard to avoid Wednesday. Policy makers discussed the merits during the last Fed meeting, minutes show.

Minnesota Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 61516

Reported Deaths: 1701
CountyConfirmedDeaths
Hennepin19472835
Ramsey7658267
Dakota4480106
Anoka3739115
Stearns290620
Washington215545
Nobles17656
Olmsted174723
Scott157419
Mower11032
Rice10388
Blue Earth9275
Wright8925
Carver8733
Clay78540
Sherburne7328
Kandiyohi6981
St. Louis57019
Todd4262
Lyon4253
Freeborn3601
Steele3512
Nicollet34213
Benton3203
Watonwan3080
Winona26416
Beltrami2410
Crow Wing23914
Le Sueur2241
Martin2075
Chisago2041
Goodhue1979
McLeod1970
Otter Tail1973
Cottonwood1780
Becker1611
Pipestone1579
Polk1544
Waseca1490
Itasca14712
Douglas1431
Carlton1380
Unassigned13441
Pine1290
Dodge1280
Isanti1280
Murray1221
Chippewa1061
Morrison931
Wabasha920
Brown892
Faribault870
Jackson860
Meeker862
Rock850
Sibley842
Koochiching793
Pennington751
Cass732
Mille Lacs713
Fillmore650
Renville655
Lincoln580
Grant563
Swift551
Roseau520
Yellow Medicine520
Pope480
Norman410
Aitkin401
Houston400
Kanabec371
Redwood360
Hubbard340
Wilkin343
Marshall290
Mahnomen271
Wadena270
Red Lake240
Big Stone220
Lake210
Stevens180
Clearwater140
Traverse110
Lac qui Parle80
Cook50
Lake of the Woods40
Kittson30

Iowa Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 49024

Reported Deaths: 930
CountyConfirmedDeaths
Polk10351207
Woodbury372752
Black Hawk313466
Linn239988
Johnson210719
Dallas188835
Buena Vista179412
Scott172714
Dubuque168631
Marshall144626
Pottawattamie132526
Story116714
Wapello90433
Muscatine84848
Webster8138
Crawford7303
Sioux6373
Cerro Gordo63417
Warren5691
Tama55329
Jasper47926
Wright4731
Plymouth4639
Clinton4103
Dickinson3824
Louisa37814
Washington30010
Boone2593
Hamilton2481
Franklin24110
Bremer2277
Clarke2023
Clay1961
Carroll1931
Emmet1924
Des Moines1862
Hardin1840
Shelby1841
Marion1740
Benton1601
Poweshiek1598
Floyd1572
Jackson1561
Allamakee1554
Mahaska14017
Cedar1331
Guthrie1325
Jones1322
Buchanan1291
Henry1274
Hancock1222
Madison1222
Butler1212
Humboldt1181
Lee1173
Pocahontas1162
Delaware1151
Lyon1142
Harrison1091
Cherokee1081
Clayton1043
Iowa981
Taylor980
Winneshiek971
Page940
Monona910
Kossuth900
Mills890
Jefferson860
Palo Alto860
Sac850
Fayette840
Winnebago840
Calhoun832
Osceola830
Grundy791
Mitchell780
Union771
Cass741
Monroe747
Lucas714
Worth660
Davis602
Montgomery594
Chickasaw540
Appanoose493
Howard490
Fremont420
Greene420
Keokuk371
Van Buren361
Ida310
Adair300
Audubon281
Decatur230
Ringgold221
Wayne201
Adams160
Unassigned30
Rochester
Clear
51° wxIcon
Hi: 81° Lo: 57°
Feels Like: 51°
Mason City
Clear
51° wxIcon
Hi: 83° Lo: 57°
Feels Like: 51°
Albert Lea
Clear
61° wxIcon
Hi: 81° Lo: 58°
Feels Like: 61°
Austin
55° wxIcon
Hi: 82° Lo: 58°
Feels Like: 55°
Charles City
Clear
59° wxIcon
Hi: 82° Lo: 57°
Feels Like: 59°
Clouds clear tonight, tracking sunshine for Tuesday!
KIMT Radar
KIMT Eye in the sky

Latest Video

Image

Sean Weather 8/11

Image

Affinity Plus Credit Union holding technology drop off

Image

More parents switching to homeschooling

Image

Car crashes into Mason City home

Image

Dangerous week for cyclists

Image

Sara's 10pm Forecast - Monday

Image

Iowa fall practices begin Monday

Image

How you can raise funds with a local tech companies app

Image

Sara's 6pm Forecast - Monday

Image

Saving A Historic Church

Community Events