- By David FrancisDavid Francis is a staff writer for Foreign Policy, where he oversees FP's breaking news blog, The Cable. An award-winning journalist, David has reported from all over Europe, Nigeria, Kenya, Mexico, and Afghanistan on terrorism, national security, the geopolitics of energy, global economics, and the European financial crisis. His work has been published in outlets including the Christian Science Monitor, the Financial Times Deutschland, Slate, and SportsIllustrated.com.
In May, Republican presidential nominee Donald Trump said the U.S. Federal Reserve’s decision to keep interest rates near zero was the right thing to do. On Monday, he alleged that decision was an Obama administration ploy.
Speaking to CNBC is May, Trump said, “Right now I am for low interest rates, and I think we keep them low.” Monday morning, speaking to the same network, the businessman had this to say: “It’s staying at zero because she’s obviously political and she’s doing what Obama wants her to do,” Trump, said, referring to Fed chief Janet Yellen, who he also said was “obviously not independent.” “And I know that’s not supposed to be the way it is, but that’s why it’s low.”
Nothing has changed since Monday and May; the Fed lifted interest rates from zero to between .25 and .50 percent last December, the first rate hike in nearly a decade, because it thought the U.S. economy was growing a bit stronger. Since then, rates have been left unchanged, in large part because the economy is still wheezing, and the Fed is wary of smothering a nascent recovery by hiking rates too soon.
And his faith in Yellen has also shifted. In May, Trump said, “She is a low interest rate person, she has always been a low interest rate person, and I must be honest — I am a low interest rate person. If we raise interest rates and if the dollar starts getting too strong, we’re going to have very major problems.” Low interest rates are seen as stimulative for the economy, by making capital cheaper, and are especially welcome by businesses and consumers holding debt in the form of bonds or mortgages.
Now, apparently the GOP nominee is no longer a low-interest rate person. On Monday, he went on to accuse Yellen of creating a “false stock market.” He added: “Any increase at all will be a very, very small increase because they want to keep the market up so Obama goes out and let the new guy … raise interest rates … and watch what happens in the stock market.” The Dow Jones Industrial Average typically trades lower for a day or two when there are fears of a rate hike. But the index has been trending up since the depths of the Great Recession in 2009.
Meanwhile, speaking separately Monday afternoon, Federal Reserve Governor Lael Brainard offered fuel to Trump’s Fed conspiracy fire by saying that a interest rate hike was not imminent. She said the Fed remained concerned about the impact of global difficulties on the U.S. economy, and that the central bank would like to see more job growth before making any interest rate change.
“Most importantly, China is undergoing a challenging transition from a growth model based on investment, exports, and debt-fueled state-owned enterprises to one driven by consumption, services, and dynamic private businesses,” Brained said at the Chicago Council on Global Affairs. “Because of the adjustment costs along this transition path and demographic trends, Chinese growth will likely continue to slow.”
Wall Street saw the comments as evidence that no rate hike is on the near horizon. Traders now anticipate just a 15 percent probability, down from 21 percent before the speech and as high as 30 percent Friday.
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