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White House National Economic Council Director Larry Kudlow
The White House pressure on the Federal Reserve heated up again on Friday after President Trump’s adviser Larry Kudlow said he wanted the U.S. central bank to “immediately” cut its benchmark interest rate by 50 basis points.
Kudlow’s comments, reported by Axios, echo the view of Stephen Moore, who Trump is expected to nominate to the Fed board. Moore, a former op-ed writer at The Wall Street Journal, has worked with Kudlow in the past.
In an interview on CNBC later Friday, the director of the National Economic Council said he was echoing President Donald Trump’s viewpoint about monetary policy. Trump also wants the Fed to stop shrinking its balance sheet.
He said the situation was not “an emergency” and mused that he might not have said the move should come “immediately.”
Kudlow said his proposal for the Fed to rate cuts was simply needed to protect the economy from global threats. “I’m not trying to jump at the Fed,” he added.
In comments this week, Fed officials have argued against an immediate interest-rate cut. They said they intend to keep policy on hold until the uncertainty surrounding the economic outlook lifts.
The bond market thinks the next move by the U.S. central bank will be to ease its stance of monetary policy. Investors are pricing in over a 30% chance of two quarter-point rate cuts by next January.
At their meeting earlier in March, the Fed projected no further rate hikes in 2019. This is down from two hikes projected in December.
Fed Vice Chairman for Supervision Randal Quarles, who was picked by Trump for the Fed, on Friday said he thinks the next move by the central bank will be to raise interest rates.
Read: Fed’s Quarles takes hawkish stance
The Fed has held interest rates steady in a range of 2.25%-2.5% since December after four quarter-point rate increases last year. Kudlow said that the central bank should never have pushed its benchmark rate past 2%.
Trump said earlier this week that Powell has no “feel” for the economy, according to Politico.
Last year, Trump tried to get the central bank to hold off a rate hike in December. At one point, he said the Fed “gone crazy” with their tightening of monetary policy.
Trump criticized the Fed’s moves in a tweet late Friday.
Had the Fed not mistakenly raised interest rates, especially since there is very little inflation, and had they not done the ridiculously timed quantitative tightening, the 3.0% GDP, & Stock Market, would have both been much higher & World Markets would be in a better place!
— Donald J. Trump (@realDonaldTrump) March 29, 2019
For his part, Powell has said many times he pays no attention to the White House pressure. He told CBS’s “60 Minutes” that he intended to serve out his four-year term.
Kudlow said the White House wouldn’t try to get Powell to leave his post. “He’s our chairman. We’re not going to displace him,” he said.
“The Fed should not tighten just because of prosperity,” Kudlow said.
Kudlow said the Trump economic policy worked on the supply side of the economy and “was not inflationary,” he said.
The central bank needed to recalibrate its thinking on what causes inflation, he added.
The latest inflation data show that the Fed does have room to operate. Data out Friday showed the PCE price index slowed to a 1.4% rate in the 12 months ending January, down from 1.8% in December.
That’s the slowest inflation growth in more than two years.
U.S. stocks didn’t gyrate much to Kudlow’s remarks, with the Dow industrials DJIA, +0.82% still up by more than 100 points. Short-term yields TMUBMUSD02Y, +1.08% in fact rose slightly.
