Trump's Fed Threat Creates Opportunity for Credibility Boost

US President Donald Trump's comments on Federal Reserve policy have sparked confusion and concern. Despite strong August payroll gains, Trump surprisingly linked US interest rate policy to trade ties with America's biggest partners.

The Fed is set to meet in September, and Trump's comments were seen as an opportunity for Chair Kevin Warsh to distance himself from the White House. Trump wants lower interest rates, but most economists agree that a rate rise is justified given strong growth and above-target inflation.

TS Lombard economist Dario Perkins noted that a 25bps hike would be good PR and help confirm Warsh's control of the central bank. Perkins also pointed out that over the past 50 years, only Janet Yellen did not lift rates within two months of taking over as Fed chair.

The market reacted little to Trump's comments, which may indicate a growing skepticism towards the president's outlandish posts. Warsh has struggled to establish his credibility since taking office in May and is now faced with big choices that risk the ire of the man who appointed him.