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The View | The Federal Reserve should not be helping the US become a closet currency manipulator
- The US central bank does not have a strong case for a rate cut and a looser policy. With a widely expected rate cut imminent, the Fed chief might be bowing to pressure from Donald Trump to weaken the dollar
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The futures market has assigned a 100 per cent probability to a Fed rate cut of at least 25 basis points on July 31, which would be the first such move in over a decade. In late May, the expected likelihood had been less than a fifth.
But in congressional testimony in mid-July, Federal Reserve chair Jerome Powell was understood to have all but promised a cut in interest rates sooner than later, possibly followed by more. A dove was born.
On the face of it, there is little to justify a policy reversal. The United States central bank has a dual mandate: maximising employment and stabilising prices. It is doing well on both fronts.
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In April unemployment hit a 49-year low. The economy added 224,000 jobs in June, and wage increases remain strong. A labour market so tight cannot be reasonably construed as a basis for a looser monetary stance in order to maximise employment.
A looser monetary policy cannot offset policy uncertainty in any lasting way. On the contrary, a rate cut will give the haphazard policymakers more rope, leading to bigger perils down the road
What about stabilising prices?
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