Trump escalates his war with the Fed

money.cnn.com

President Donald Trump has escalated his highly unusual battle with the Federal Reserve.

He tweeted early Friday that higher interest rates are taking away America’s competitive edge with China.

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, however, strengthen the dollar against the world’s currencies, which makes the United States a more expensive — and potentially less attractive — place to invest.

Trump said that raising American interest rates makes investment in China comparatively attractive, because China manipulates its currency by artificially devaluing it. When US rates go up, American businesses’ dollars go further — particularly in China, where the yuan is cheap.

Trump has twice this week weighed in on the Fed’s decisions to raise rates, and he expressed displeasure with Fed leadership during his 2016 presidential campaign. Then, his complaint was that interest rates were too low.

The dollar fell and stocks lost ground on Trump’s tweets.

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.”