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Despite Pressure From Trump, The Federal Reserve Will Raise Key Interest Rate

MARY LOUISE KELLY, HOST:

The Federal Reserve today said it would raise interest rates by a quarter of a point. At the same time, Fed officials suggested they would raise rates at a slower pace next year. That is a signal that markets have been looking for, but instead of cheering, investors sent stocks plummeting. NPR's Jim Zarroli explains why.

JIM ZARROLI, BYLINE: Today's rate hike was a surprise to no one. The Fed had already signaled that it would increase rates for the ninth time in three years. Fed Chairman Jerome Powell told reporters after the meeting that the U.S. economy is still growing at a robust pace.

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JEROME POWELL: 2018 has been the strongest year since the financial crisis. And during that period, we've had low unemployment and strong growth, and inflation has still remained just a touch below 2 percent.

ZARROLI: Those are ideal conditions for economic growth, and Powell said the Fed's outlook remains positive. But the Fed now expects the economy to grow by just 2.3 percent next year instead of 2 1/2 percent. Powell said the Fed is carefully watching some new, potentially worrisome forces at work in the global economy.

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POWELL: More broadly, there's been a sense of concern among businesspeople and market people about global growth. And, you know, that may be partly about trade tensions. It may be partly about a variety of things.

ZARROLI: Powell said the current tariff dispute between the U.S. and China is a relatively small factor in growth, but it could hurt business confidence, and that's a potential problem. And so he said the Fed will take that into account next year. Most Fed officials expect the Fed to raise rates no more than twice in 2019 instead of three times. Ward McCarthy is chief financial economist at Jefferies & Company.

WARD MCCARTHY: The Fed still expects to raise rate going forward, but they expect to do it at a slower pace, a less predictable pace.

ZARROLI: That normally might have been enough to calm down the financial markets, which have been especially volatile lately. Stock investors in particular dislike rate hikes, but Powell's words didn't seem to go far enough to appease investors. On the contrary, stocks plunged as soon as he began speaking and kept falling throughout the press conference. Stock prices are now well into negative territory for the year, and they keep falling. Ryan Sweet is head of monetary policy research at Moody's Analytics.

RYAN SWEET: My takeaway from that is that, you know, markets are really concerned that the Fed's just going to keep hiking rates until something breaks.

ZARROLI: High interest rates tend to slow down growth by making it more expensive to borrow. Sweet says he doesn't think the Fed is going to raise rates recklessly. It's just monitoring the data carefully and trying to understand what's happening. But investors aren't happy and neither for that matter is President Trump, who has railed against the Fed for raising rates. He has even singled out Powell for criticism. This week, Trump said in a tweet that Fed officials need to, quote, "feel the market, not just go by meaningless numbers." At today's press conference, Powell was asked whether Trump's attacks had influenced Fed policy. His reply was polite but firm.

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POWELL: Political considerations have played no role whatsoever in our discussions or decisions about monetary policy.

ZARROLI: Powell said we have the independence we need to do our jobs, and nothing will deter us from doing what we think is the right thing to do. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.


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