The markets had some time to digest the interest rate announcement on Wednesday as the Federal Reserve announced an increase of the federal funds rate by 25 basis points to 2.25. Following the announcement and a presser with Fed Chairman Jerome Powell, the Dow Jones Industrial Average was 106 points in the red, but rebounded to start today’s opening session–up over 100 as of 11:00 a.m. ET.
The common notion in the capital markets was that the Federal Reserve would likely raise interest rates was confirmed as the Fed capped off a two-day monetary policy meeting with yesterday’s announcement. It is the third time this year the Fed has upped the ante on its rate-hiking policy, which is likely to continue for the rest of this year.
Related: Trade Wars Do Not Concern Fed Chair Just Yet
One point of contention echoed throughout the markets is that the Fed could give pause to their rate-hiking measures if trade wars continue to be a concern. Both the U.S. and China have already slapped each other with tariffs worth $50 billion total, which have raised questions on whether tariffs turn from sector-wide issues to broad economic disruptions.
However, Powell stated that any substantial impacts on the economy as a result of the tariffs have yet to materialize.
“I think if you look at the aggregate performance of the U.S. economy, it’s hard to see much happening at this point,” said Powell. “You can look at it the other way and ask ‘If all the tariffs that have been announced are applied, what would be the affect at the aggregate level?’ They’re still relatively small.”
Furthermore, Powell needed to see more hard data that the tariffs are having nation-wide implications on the economy before acting as such with respect to influencing monetary policy.
“More than anything, I would worry in the longer run where this is going,” said Powell. “If the end place we get to is lower tariffs, then that would be good–trade generally supports productivity and higher incomes.
“If this inadvertently goes to a place where we have widespread tariffs for a long time in a more protectionist world, that’s going to be bad for the United States economy.”
Trump Reiterates Unhappiness with Rates
U.S. President Donald Trump has been a vocal opponent of the Fed’s rate-hiking measures and he communicated his discontent once again following the announcement. While President Trump was quick to point out that the rate hike was a result of the strong economic data backed by a low unemployment rate, he was even quicker to denigrate the rate hike, saying that there were other ways to address the economic growth other than increasing rates.
“Unfortunately they just raised interest rates a little bit because we are doing so well. I’m not happy about that,” the president said at a press conference in New York on Wednesday. “I’d rather pay down debt or do other things, create more jobs.”
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