SEVERE WX : Wind Advisory - Winter Weather Advisory View Alerts

Trump escalates his war with the Fed

President Donald Trump has escalated his highly unusual attack on the Federal Reserve.He tweeted early Friday ...

Posted: Jul 20, 2018 8:02 PM
Updated: Jul 20, 2018 8:02 PM

President Donald Trump has escalated his highly unusual attack on the Federal Reserve.

He tweeted early Friday that higher interest rates are taking away America's competitive edge with China. On Thursday, he complained that higher rates were undoing his administration's efforts to help the economy.

The dollar fell on Trump's tweets.

The Federal Reserve was constructed early in the 20th century to be an independent financial institution, free from the whims of politics. The Fed has been carefully and gradually raising rates over the past several years to keep inflation in check and to prevent the economy from overheating.

Higher rates strengthen the dollar against the world's currencies, which makes the United States a more expensive place to invest.

Trump said that raising American interest rates makes China a more attractive to place to invest, because China artificially devalues its currency. When US rates go up, American businesses' dollars go further outside the United States - particularly in China, where the yuan is cheap.

Ironically, the Trump administration's trade war with China has helped devalue the yuan, which has fallen more than 8% over the past three months. China's slowing economy has pushed the yuan lower, too.

The yuan fell sharply against the dollar on Thursday and Friday after China's central bank indicated that it was willing to accept a weaker currency. The People's Bank of China does not let the yuan float freely like the dollar. Instead, China sets a daily trading range for the yuan - an action that Trump and other China critics have described as currency manipulation.

A weak yuan could help China's economy cope with American tariffs, because Chinese products would be cheaper for buyers who pay in dollars.

In an interview with CNBC on Friday, Trump reiterated that he is willing to impose tariffs on all $506 billion worth of goods that China exports to the United States.

The United States is preparing to impose tariffs on another $16 billion of Chinese exports on top of the $34 billion already subject to American import taxes.

Meanwhile, other currencies have lost ground to the dollar this year. The European economy has lagged the United States', and the European Central Bank has only just begun to tighten its monetary policy.

Having it both ways

Trump has spoken out about the dollar and interest rates before. His comments are not only inconsistent with precedent, they are also inconsistent, period.

He has supported a strong dollar in the past.

"The dollar is going to get stronger and stronger, and ultimately I want to see a strong dollar," Trump said in a January 25 interview with CNBC at the World Economic Forum in Davos, Switzerland.

He also previously supported higher interest rates. He criticized former Fed Chair Janet Yellen, saying she should be "ashamed of herself" for keeping interest rates so low.

"The ones who did it right - they saved their money [and] they cut down on their mortgages ... and now they're practically getting zero interest on the money. Those people have really been, you could almost say discriminated against," he said in a September 12, 2016, interview with CNBC.

This is why presidents are not supposed to weigh in on Fed policy. What's politically expedient at the time may not be good for the American economy in the long run.

The Fed had no comment. Chairman Jerome Powell has played down concerns about Trump's politicizing the Fed.

"We have a long tradition here of conducting policy in a particular way, and that way is independent of all political concerns," he said in a radio interview last week with "Marketplace."

St. Louis Fed President James Bullard told reporters Friday that Trump's comments would not influence the central bank's decisions.

"Lots of politicians talk about Fed policy. The president does not have to stay out [of the debate]," he said. "It doesn't really change what the committee faces."

- CNNMoney's Donna Borak contributed to this report.

New York Coronavirus Cases

County data is updated nightly.

Cases: 2777942

Reported Deaths: 57757
CountyCasesDeaths
Kings35194510985
Queens32876810428
Suffolk2604523698
Nassau2301243339
Bronx2142426810
New York1789954667
Westchester1498342357
Erie1290642084
Monroe1006491262
Richmond934401975
Orange63479944
Onondaga61261825
Rockland56085783
Dutchess38686513
Albany35325420
Oneida34177655
Niagara29802426
Broome29007438
Saratoga25756229
Schenectady19905249
Ulster19554294
Rensselaer18059197
Chautauqua15619197
Oswego14725138
St. Lawrence13412146
Putnam13365101
Chemung13290176
Steuben13064195
Ontario12164121
Jefferson11798108
Wayne10744105
Cattaraugus10379165
Cayuga10015114
Sullivan995990
Genesee8992146
Herkimer8647146
Clinton840848
Fulton8087115
Tompkins769361
Warren767998
Madison7654109
Livingston751378
Montgomery7453165
Washington705283
Tioga660474
Cortland624289
Allegany6238123
Columbia5915115
Chenango576697
Orleans575996
Franklin569127
Otsego561568
Wyoming554869
Greene511390
Delaware465553
Lewis434640
Seneca341570
Essex308938
Schoharie284725
Yates207334
Schuyler203020
Hamilton5273
Unassigned1482
Out of NY0341
Utica
Cloudy
40° wxIcon
Hi: 52° Lo: 35°
Feels Like: 31°
Oneonta
Cloudy
35° wxIcon
Hi: 51° Lo: 34°
Feels Like: 25°
Herkimer
Cloudy
40° wxIcon
Hi: 55° Lo: 37°
Feels Like: 31°
Old Forge
Cloudy
40° wxIcon
Hi: 47° Lo: 31°
Feels Like: 31°
WKTV Radar
WKTV Temperatures
WKTV Severe Weather
2022 WKTV Golf Card only $99.99
Game Day Deals - New Deals Each Week
Stuff the Bus Locations
Saluting Those Who Are Proud 2 Serve