Fed raises interest rates, defying Trump

The Federal Reserve on Wednesday raised interest rates for the fourth time this year, defying President TrumpDonald John TrumpCNN's Camerota clashes with Trump's immigration head over president's tweet LA Times editorial board labels Trump 'Bigot-in-Chief' Trump complains of 'fake polls' after surveys show him trailing multiple Democratic candidates MORE, who has protested the bank's policies.

The Fed’s policymaking arm, the Federal Open Market Committee, voted Wednesday to raise the baseline interest rate range to 2.25 to 2.5 percent, a 0.25 percentage point increase.

The central bank had been telegraphing a December rate hike for several months, and Wednesday’s move had been widely expected by Fed watchers. But the move comes in the face of intensifying attacks from Trump on the bank and its chairman, Jerome Powell, for raising rates amid new questions about the American economy.

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Trump has urged the independent central bank to keep cheap money flowing into the strong economy. The president begged the Fed Tuesday to consider a steep stock sell-off on Wall Street and to halt their rate hikes.

“Feel the market, don’t just go by meaningless numbers,” Trump said in a tweet. “Good luck!”

Powell defended the bank's independence at a press conference Wednesday, insisting that “political considerations play no role whatsoever in our discussions or decisions about monetary policy.”

He added that he is not worried that Trump’s tweets and statements could interfere with his ability to communicate with markets.

“I know, and everyone who works at the Fed knows, that we’re going to do our jobs the way we’ve always done them,” Powell said.

The Fed said in its statement that it decided to raise rates in light of “realized and expected labor market conditions and inflation.” Employers added 155,000 jobs in November, keeping the jobless rate at 3.7 percent.

Fed officials slightly downgraded their estimate for gross domestic product (GDP) in 2018, lowering their median estimate to 3 percent from 3.1 percent in September. They lowered their median estimate for GDP in 2019 to 2.3 percent, from 2.5 percent in September.

Powell also signaled that 2019 would likely see two rate hikes, down from an estimated three in an earlier forecast in September, acknowledging new headwinds for the economy.

The rate hikes and press conference added to another day of volatility on Wall Street. The Dow Jones Industrial Average swung wildly, moving higher ahead of the decision. But the Dow reversed course during Powell's press conference over the likelihood of raising rates again next year, falling sharply. The Dow closed for the day down 352 points. The S&P 500 fell 1.54 percent to a 15-month low.

The day highlighted the complicated task for Powell, who took control of the bank in February. Powell is looking to reassure the public and policymakers that the Fed has control over the economy.

The Fed under Powell is aiming to bring interest rates up toward historically neutral levels as the economy enjoys near-record low unemployment, rising wages and strong GDP growth.

Most Republicans and many Democrats support the Fed’s efforts to raise borrowing costs to stave off inflation.

But some analysts suggested the Fed might best pause in December after the bloody quarter for U.S. equity markets and flatlining inflation close to the bank’s target range.

Hovering over Powell is Trump, who tapped him for the job. Powell has become a punching bag for the president, with Trump blaming the bank chief for a slew of economic setbacks, including the stock slide and General Motors layoff plans. Trump in October even said that he "maybe" would regret tapping Powell to lead the bank.

Powell has ignored the president's attacks and touted the central bank's independence.

The Fed is mandated to foster stable prices and full employment by adjusting interest rates in response to inflation and joblessness. While Fed rate hikes generally signal a strong economy, they often suppress the stock market, which is Trump’s preferred economic barometer.

The Dow Jones Industrial Average has fallen over 3,000 points since an October high and the Nasdaq composite is down 17 percent.

Powell has defended the Fed’s steady rate hikes as the least risky path for navigating a solid but uncertain economy.

Economists have highlighted a slowing housing market and a drop in long-term business confidence and investments, driven in part by worries over Trump's trade agenda. That murky picture comes despite a strong job market.

Fed officials insist that while rates are relatively close to neutral level, they’re unsure of just how soon they will get there.

Powell said that rates are at the lower end of the neutral range and that there’s “significant uncertainty about both the path and ultimate destination of further rate increases.”

He said the Fed will let data influence how it acts.

Updated at 4:14 p.m.