Trump Fed critique sends dollar lower

In an interview with CNBC broadcast Friday, President Trump said he's ready to escalate the trade war with China by slapping tariffs on every single thing the country exports to the U.S.

Trump denounced the rate hikes in an interview with CNBC, just the latest time he has strayed from the traditions normally observed by the president.

"I am not happy about it. But at the same time I'm letting them do what they feel is best", he said.

The dollar relinquished gains from earlier in the day and Treasury yields dropped following the president's remarks.

"But I don't like all of this work that goes into doing what we're doing".

Trump claimed Friday on Twitter that Fed rate hikes would put the a competitive disadvantage to China and the European Union, which he accused of manipulating their currencies and abusing trade laws.

Indeed, he has never been reticent on the subject.

A number of factors, including inflation and higher interest rates, could soon counteract the fiscal stimulus, however, and economists say the risk of recession in the coming years is growing. Both political and economic officials believe that the central bank needs to operate free of political pressure from the White House or elsewhere to properly manage interest rate policy.

It wasn't the first time in history the Fed has faced pressure from a U.S. president.

The White House later clarified Trump's statements. In the interview, Trump called Powell a "very good man".

Trump suggested that the Federal Reserve wait to raise rates, allowing the United States economy to grow stronger.

The yuan had already slumped 6.7 per cent against the dollar since April, making it the biggest loser among Asia's 12 currency pairs during the period. The fed-funds futures market is pricing in an 88% probability of a similar increase in September, according to Bloomberg, although the odds for a fourth 2018 increase, to 2.25%-2.5%, in December are far less certain, at 62%.

Not until Paul Volcker took over the Fed almost a decade later and ratcheted up interest rates in what is known as the "Volcker Shock" would the issue be truly corrected.

Gregory Daco, chief USA economist at Oxford Economics, pointed to research by Alberto Alesina and Lawrence Summers that showed in countries with a politically influenced central bank had higher inflation. To do so, Nixon swapped out Fed Chairman William McChesney Martin with his pick, Arthur Burns.

In the run up to the 1972 election, Nixon wanted to present the country with a strong economy and low unemployment.

The Fed has raised rates five times since Trump took office in January 2017, and has penciled in two more hikes for this year. The main concern is that the central bank will not have enough room to cut rates dramatically in the event of a deep recession, rather than rates that are too high now.