Dec 19, 2018

The Fed is walking Trump's tightrope

Dion Rabouin, author of Markets

Illustration: Rebecca Zisser/Axios

The Fed's "dovish lite" rate hike today is a key moment in chairman Jerome Powell's balancing act. This interest rate increase was expected, protests from President Trump notwithstanding, because one had been telegraphed for months and the Fed rarely surprises.

Why it matters: The Fed signaled today two more hikes next year instead of three while reiterating that "risks to the economic outlook are roughly balanced," but for the first time noted it will "monitor global economic and financial developments and assess their implications for the economic outlook."

Between the lines: Having worked as an investment banker at Dillon Read & Co. and The Carlyle Group, Powell is much closer to the markets than his predecessors. And Wall Street has been clamoring for the Fed to slow down.

  • That's why there was such an outsized reaction to his November statement that U.S. interest rates were now "just below" rather than "a long way" from neutral. It was a sign that Powell heard the so-called Dow vigilantes and was ready to delay further hikes in 2019 should the equity market downturn persist.

Powell learned from former Fed chairs Ben Bernanke and Janet Yellen, who both faced hostility from Congress and the public, to keep a low profile.

  • He's done everything he can to avoid a confrontation with Trump. He started by effusively praising the economy after taking over as chair and has gone out of his way to avoid commenting on Trump and congressional Republicans' expansionary fiscal policy, or the federal deficit.

He's also made it a major point to woo Congress, with 60 personal visits and one-on-one phone calls to lawmakers, according to his most recent public calendars from February to August.

"He wants as strong a political base as he possibly can, and he also wants to not be blamed for stuff. The way you don’t get blamed for stuff is to not make promises about your future actions."
— Vincent Reinhart, a former Fed official and now chief economist at Standish, a division of BNY Mellon

What's next: Don't expect Powell to kowtow to Trump's tweets, but the awful performance of the stock market in December has to have changed his thinking somewhat. His strategy appears to be endearing himself and the U.S. central bank to Wall Street and Capitol Hill.

  • The futures market sees zero rate hikes in 2019, ignoring the Fed's previous dot plot, which showed three rate hikes next year.

Go deeper

Updated 16 mins ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 8 a.m. ET: 5,945,737— Total deaths: 365,368 — Total recoveries — 2,515,675Map.
  2. U.S.: Total confirmed cases as of 8 a.m. ET: 1,747,087 — Total deaths: 102,836 — Total recoveries: 406,446 — Total tested: 16,099,515Map.
  3. Supreme Court: Chief Justice Roberts sides with liberals in denying challenge to California's pandemic worship rules.
  4. Public health: Hydroxychloroquine prescription fills exploded in March.
  5. 2020: North Carolina asks RNC if convention will honor Trump's wish for no masks or social distancing.
  6. Business: Fed chair Powell says coronavirus is "great increaser" of income inequality.

Deaths without consequences

Community organizations and activists demand police accountability at a rally in Grand Central Terminal to commemorate the 5-year anniversary of Mike Brown's death by Ferguson Police Officer Darren Wilson. Photo: Erik McGregor/Getty Images

Seven years after the launch of the Black Lives Matter movement, it's still rare for police officers to be charged in the deaths of African Americans — and even more rare for an officer to go to jail.

The big picture: The Minneapolis police officer who was captured on video kneeling on George Floyd's neck has been charged with third-degree murder and manslaughter — which is already a step beyond the consequences other police officers have faced. But it's no guarantee that he will face jail time.

Teenager killed after shots fired at protesters in Detroit

Detroit police during protests on Friday night. Photo: Matthew Hatcher/Getty Images

A 19-year-old man was killed on Friday night after shots were fired into a crowd of demonstrators in downtown Detroit who were protesting the death of George Floyd in Minneapolis police custody, per AP.

Details: The teenager was injured when shots were fired from an SUV about 11:30 p.m. and later died in hospital, reports MDN reports, which noted police were still looking for a suspect. Police said officers were not involved in the shooting, according to AP.

Go deeper: In photos: Protesters clash with police nationwide over George Floyd