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The Fed: Trump piles on Fed after Williams slip-up

President Donald Trump on Friday highlighted a Fed communication slip-up, and pushed the central bank to again cut interest rates. Read More...
Bloomberg News/Landov

President Donald Trump and Fed Chairman Jerome Powell in the White House Rose Garden.

President Donald Trump on Friday kicked the Federal Reserve when it was down by highlighting a communications snafu featuring New York Fed President John Williams late Thursday afternoon.

In his remarks and subsequent walk-back, Williams seemed initially to support aggressive easing, only to have a spokesman step up to downplay his comments.

In his speech, Williams argued that his research on the “zero lower bound” showed the Fed should act to cut interest rates at the first sign of illness and not wait for a disease to spread with benchmark interest rates low.

Read: Fed’s wisest strategy is to cut rates at first sign of trouble

Investors took the comment as evidence the New York Fed president supported a half-point rate cut at the Fed’s next meeting on July 30-31. Fed funds futures quickly priced in greater than 50% chance of a 50-basis-point move.

After the sharp reaction, the New York Fed put out a statement trying to walk back the comments.

A spokesman said Williams’s comments were “academic” and not about current policy.

Neil Dutta, head of economics at Renaissance Macro Research, called the episode “amateur hour at the Fed.”

“We have not seen anything like this before,” Dutta said in a note to clients, “and honestly, we are not sure what they were thinking.” He said the prospect of a half-point cut can’t be ruled out.

Trump jumped into the fray Friday and tweeted that he liked Williams’s initial stance and not the reversal:

Trump has been urging the Fed to cut interest rates all year. He has long bemoaned the fact that Chinese leaders have complete control over their central bank and are using monetary policy to offset the impact of U.S. trade tariffs.

Ethan Harris, head of global economics research at Bank of America, called Williams’s remarks “very bad communication.”

Harris said Williams’s comments were not about a quarter-point or half-point move, but markets hear what they want, and it is up to Williams to explain to the public what he was talking about, he added.

Williams was speaking right before the Fed goes silent to prepare for its policy meeting at the end of the month. From a market point of view, that lent added importance to his comments, Harris said.

“The Fed leadership needs to recognize how powerful it is to be the last speakers before the blackout period. The market will give heavy weight to these comments,” he said.

Stocks moved higher Friday morning, with the Dow Jones Industrial Average DJIA, +0.13% up 50 points. The yield on the 10-year Treasury note TMUBMUSD10Y, +1.02% was little changed at 2.049%.

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