Trump takes Federal Chairman to task for rate hikes in Reuters interview

U.S. President Donald Trump arrives shakes hands with Jerome Powell, his nominee to become chairman of the U.S. Federal Reserve at the White House in Washington, U.S., November 2, 2017. REUTERS/Carlos Barria - HP1EDB21HQF0Y

US President Donald Trump said on Monday he was "not thrilled" with Federal Reserve Chairman Jerome Powell for raising interest rates and accused China and Europe of manipulating their respective currencies.

"The US dollar's safe-haven role may be fading as improving economic indicators such as GDP in the euro zone and inflation across the Atlantic naturally are pushing up the buck's main rivals. Additionally, Trump's comments on the Fed's hike path look like an attempt to do the exact thing we are accusing others of doing: purposeful depreciation based on intervention. We see tough times for the dollar ahead as economic momentum helps other currencies recover and negative language influences a drop of dollar strength."

"The news is that (Trump) continues to express concerns about how interest rates affect the economy. He's jawboning the Fed a little bit. I still think the Fed will remain independent. I think the market will pay more attention to the Fed minutes than what comes out of the administration on interest rates."

"This is helping Treasury prices to go out at the highs late today. The overall market reaction is muted given the late summer trading volume. Still they should provide some support for overseas trading. This should push US five-year and 10-year yields to go below levels which have held since June. Bond futures prices are testing best levels since June after these comments from President Trump. I don't think they will shape rate expectations very much. I don't think the Fed and Chairman (Jerome) Powell will be susceptible to be pushed around by Trump's comments. They are not new or surprised because Trump has said he's a 'low-rate' guy."

"It certainly breaks a few norms for a sitting President to not only comment publicly on past Fed action, but also on potential future action as well. I doubt these comments move the needle for Powell and his colleagues, but it certainly sends a strong signal to those candidates interested in vying for one of the Fed Board's many open seats: favour easy money policy or find another job."

"In the first place, both the President and Congress, by passing the tax cuts and jobs bill, as one example, are trying to grow the economy. By almost any matrix that can be used, they are succeeding.

"The Fed keeps calling for raising rates in a return to 'normalcy.' I would argue, with all of the central bank intervention, here and abroad, that there was been no 'normalcy' for almost a decade. There is no good reason, in my view, to raise rates based upon some academic theory of normalcy.

"Raising rates just slows the economy down. So what we have here is the president and the Congress trying to expand the economy while the central bank of the United States is going in exactly the opposite direction.

"My other comment would be that the Fed, while an independent institution, is also America's central bank and that the president, any president, of either party, has the right, if not the obligation, to question what they are doing as a matter of policy.

"Remember, the Fed was created by an Act of Congress in 1913, The Federal Reserve Act. It is an independent institution, by design, but it is also part of the government of the United States."

"While minor, we believe the President's interview was part of the reason Treasuries went out at the highs.

"If Trump had good information he would focus more on the unwind of the (Federal Reserve's) balance sheet, as the raising of short rates twice this year has not risen long rates, and they are actually lower in yield from the first raise of the year."

The S&P 500 pulled back from a session high just before the 4 p.m. close following the news. The index closed up 0.24 percent.

Yields moved up fractionally to close near the day's high. The 10-year note yield ended the session near 2.82 percent, down 5.4 basis points from Friday's close.

The dollar index dropped to the day's low, ending 0.33 percent weaker for the session.