- President Donald Trump has criticized the Federal Reserve over rising interest rates.
- Although rising interest rates can be a sign of strong economic performance, they also often occur before a recession.
- Many business economists believe the U.S. could be headed toward a recession in 2020.
Lately, President Donald Trump has harshly criticized the Federal Reserve for its monetary policy, specifically, how it’s managing interest rates. According to the Washington Post, the Fed decided in its late September Federal Open Market Committee (FOMC) meeting to hike interest rates to a range of 2 percent to 2.25 percent and indicated that it would likely raise rates again in December and possibly three more times in 2019.
Trump has called the Fed “crazy” and has even gone as far as saying, “My biggest threat is the Fed,” according to an interview with Fox Business. His attacks could be in part because rising interest rates are a double-edged sword. Although rising interest rates indicate and reflect strong economic performance, they also often occur in the lead-up to recessions. This is one of the main issues at the center of the Fed’s monetary policy, and the basis of Trump’s argument that higher rates are the single biggest threat to economic recovery, according to CNBC.
Despite the president’s attacks on the Fed, “Further gradual increases in the target range for the federal funds rate would most likely be consistent with a sustained economic expansion, strong labor market conditions, and inflation near 2 percent over the medium term,” according to the minutes from the FOMC meeting.
How Rising Interests Rates Can Signal a Possible Recession
The reasons for Trump’s antagonism toward an interest rate increase are manifold, but there are factors that stand out. First, a precipitous rise in the federal funds rate has historically preceded the onset of a recession. It might not be the direct cause, but the correlation is there.
According to data from the Federal Reserve Bank of St. Louis, noticeable increases in federal interest rates occurred during the housing bubble and led up to the 2007-09 recession; rates plateaued right before the dot-com burst and recession in 2001; even the early 1990s recession saw interest rates peak just over a year before the downturn officially began during the summer of 1990.
No president wants to be saddled with a recession during their tenure in office. The problem for Trump is that the American economy is more or less due for a downturn. According to CNN, the country’s present economic expansion began in June 2009 — the official end of the last recession, eight years and seventh months ago. If the boom continues to summer 2019, it will be the longest period of sustained economic expansion in U.S. history.
Thus, what goes up must come down, and the downturn is in the near future. According to Bloomberg, two-thirds of U.S. business economists anticipate a recession to start by the end of 2020, conveniently right around the time of the 2020 election. Although the average American can’t do much about Federal Reserve policy or President Trump — besides voting — your best strategy is to prepare and keep a sharp eye out for major warning signs of an upcoming recession.
Click through to learn survival tips for the next recession.
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