The Blame Game | FTI Consulting

The Blame Game

Fed Blaming for the Next Downturn Has Already Begun

Corporate Finance & Restructuring

November 6, 2018

blame

In a rare display of public criticism by a sitting president of our central bank’s policy decisions, President Trump recently said that the Federal Reserve was “…my biggest threat,” after previously commenting that the “Fed has gone crazy,” and was “out of control.” The president’s words for our independent central bank raised some eyebrows, but that was about the extent of the reaction to the bluntest comments aimed at a Fed chairman by a president since Richard Nixon.

However consider the Fed’s offense: it had the audacity to raise the Fed Funds target range by 25 basis points, to 2.0%- 2.25%, as the broad U.S. economy continues to expand. It was the third rate hike this year by the Fed—exactly in-line with the expectations of most Fed watchers coming into the year—following a gradually higher rate path after a near zero Fed Funds rate policy from 2009-2015. President Trump also commented that its rate policy “…hurts all that we have done.”

The president wasn’t alone in his criticism of Fed policy. Other market pundits, notably CNBC host Jim Cramer, have also been highly critical of the Fed after its latest rate hike, mostly because it spooked equity markets from their lofty perch, with Cramer going so far as to say that he thinks the Fed is “traumatized.” Some noted fund managers have commented similarly in 2018 that rising rates threaten U.S. economic growth and market gains. Such intense reactions to seemingly prudent efforts by the Fed aimed at normalizing interest rates and reducing its balance sheet after years of aggressive intervention raises an obvious question: When exactly should the training wheels come off this bicycle?


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