And he does it again. The Federal Reserve announced that the key short-term interest rate will be increased by 0.25% to 2.25%.
This is the fourth time this year but economists predict there will only be two hikes in 2019.
In recent months, Trump has repeatedly criticized Powell for raising interest rates and urged the Fed not to hike before central bank policymakers last week unanimously agreed to a fourth rate increase this year.
On top of that, there has been speculation that Trump might get rid of Powell but a spokesman said that Trump is quoted as saying “I totally disagree with Fed policy. I think the increasing of interest rates and the shrinking of the Fed portfolio is an absolute terrible thing to do at this time, especially in light of my major trade negotiations which are ongoing, but I never suggested firing Chairman Jay Powell, nor do I believe I have the right to do so.”
When the Fed raises interest rates, the cost of lending will go up. Lending and credit is the lifeblood of the economy, so as the cost of credit goes up, it will continue to slow down the economy. Already with trade wars and a weak economic outlook, raising interest rates at this time will likely bring on a recession.
Closer to home, the Reserve Bank of New Zealand and the Reserve Bank of Australia stated they are unlikely to raise the OCR due to the negative economic outlook. However, that doesn’t mean that mortgage interest rates will stay low forever. Because banks get a lot of their funding from overseas, if the Fed Funds Rates increases, so will the banks who borrow a lot of their money from offshore sources. What does it mean? If you got a mortgage, go fix your rate now. At least you will have some certainty in an uncertain world.
Anyway, Seasons Greetings and have a safe and happy Christmas and Happy New Year!