Fed expected to defy Trump with further rate rises

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The US Federal Reserve is set to defy criticism from Donald Trump by further increasing interest rates, despite the US president calling the central bank his "biggest threat" earlier this month.

Every Fed policymaker backed the central bank's September decision to raise the target policy rate to between 2 percent and 2.25 percent, according to minutes of the September 25-26 meeting published Wednesday.

Participants in the Fed's rate-setting committee also "generally anticipated that further gradual increases" in short-term borrowing costs "would most likely be consistent" with the kind of continued economic expansion, labor market strength, and firm inflation that most of them are anticipating, the minutes showed.

"This gradual approach would balance the risk of tightening monetary policy too quickly, which could lead to an abrupt slowing in the economy and inflation moving below the Committee's objective, against the risk of moving too slowly, which could engender inflation persistently above the objective and possibly contribute to a build up of financial imbalances," the minutes said.

US stocks closed slightly lower and US Treasury yields gained a bit as traders continued to bet on further rate hikes ahead.

Trump told Reuters in August he was "not thrilled" with Fed Chair Jerome Powell for raising interest rates, and has since escalated his criticism, this week saying the central bank is his "biggest threat," and last week calling the Fed "crazy," "loco," "ridiculous," and "too cute."

Though the minutes did not refer to any of Trump's criticism, its message of further rate increases suggests that policymakers are not fazed by it.

The broadly united front could bolster expectations the central bank will raise rates a fourth time this year in December, but the minutes also show the committee remains split on how much further to raise rates next year.

The US economy has been growing more quickly this year than many economists believe is possible without generating higher inflation, with the jobless rate at its lowest level in decades.

Source(s): Reuters