After the Fed's likely rate hike this week, all bets are off

President Trump

US President Donald Trump has stepped up his pressure on the Federal Reserve by warning the central bank against making "yet another mistake".

The U.S. stock market's 2018 gains have been erased, with the Dow dropping more than 550 points on Monday.

Nearly all 60 economists polled by The Wall Street Journal earlier this month estimated that the Fed would raise rates again this week. Given how dovish market pricing is, a downward revision in the Fed's rate forecasts won't be much of a surprise, and hence is unlikely to generate a major reaction, with any losses in the greenback being fairly limited.

The Federal Open Market Committee begins a two-meeting in Washington on Tuesday, and trading in federal funds futures indicate a greater than 70 percent chance of the panel's fourth rate hike this year. "We also know that moving too slowly keeping interest rates too low for too long - could risk other distortions in the form of higher inflation or destabilizing financial imbalances", Powell said November 28.

The US President was attacking the US central bank the day before its last meeting on monetary policy of the year, after which it is expected to raise interest rates a quarter of a percent from its current range of between 2 and 2.25 percent.

"Feel the market, don't just go by meaningless numbers", Trump wrote.

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Trump's tweets about monetary policy have intensified as US stocks tumble amid signs the world's largest economy may be moderating.

Some analysts have speculated that the Fed has been raising rates partly was out of concern that extremely low rates over an extended period had helped swell asset bubbles in such areas as stock prices.

In recent days, Trump tried to take a slightly softer tone, telling Fed Monday leaders to "Take the victory!" of a solidly growing economy with "virtually no inflation" and not ruin all the good by raising interest rates. However, the US economy grew an annualized 3.5% in the third quarter, unemployment is now at a 50-year low, and inflation is near target. This will allow the central bank to pause the hiking cycle next year without causing shocks to expectations. That means the central bank can let up to US$30 billion in Treasury and US$20 billion in agency debt run off without reinvestment each month. As a result, like many economists, he predicts that the Fed will raise rates only twice next year.

"Uncertainties about how the economy will perform next year have ballooned", said Sung Won Sohn, chief economist at SS Economics.

President Donald Trump fired the latest salvo on December 17 in his campaign to pressure Federal Reserve Chairman Jerome Powell to hold interest rates steady.

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