Kudlow: Fed should ‘move very slowly’ on rate hikes

President Trump’s top economic adviser said Friday that he hopes the Federal Reserve moves slowly with planned interest rate hikes as the economy runs at record employment levels.

Larry Kudlow, director of the National Economic Council, told Fox Business Network on Friday that he hopes “the Fed, under its new management, understands that more people working and faster economic growth do not cause inflation.”

{mosads}The Fed has been slowly raising interest rates for almost three years as the economy recovers from the 2008 recession. The central bank is aiming to strike a balance between allowing the economy to add more jobs and expand further without risking a spike in inflation.

Unemployment is now at 3.9 percent, far below the Fed’s target 5 percent level for a stable, expanding economy. Inflation has also begun to rise toward the Fed’s 2 percent target, and officials are eager to avoid a sudden spike in prices.

Kudlow said he “periodically” speaks to Fed Chairman Jerome Powell. Under Powell, the Fed has raised interest rates twice in 2018 and has projected two more hikes before 2019.

“He’s a good man,” Kudlow said, referring to Powell. “My hope is that they understand that and that they will move very slowly.”

Kudlow’s request is a rare comment from the White House on monetary policy, which is exclusively directed by the Fed. Top White House economists have historically avoided discussing preferred interest rate levels out of deference to the Fed’s independence.

The unemployment rate is now well below the Fed’s target level, and economic growth is expected to increase this year. The Fed is aiming to prevent the economy from overheating without choking off sustainable growth.

Kudlow dismissed fears that keeping interest rates low would risk overheating the economy. He insisted that new business investment powered by the 2017 tax cuts would boost supply enough to keep up with increased demand, fending off price increases.

“We’re expanding the economy’s potential to grow,” Kudlow said. “Don’t tell somebody up in the Rust Belt, don’t tell somebody in the middle of the country that working and growing is a bad idea.”

Trump and his aides have touted a massive increase in stock market value and record unemployment levels during his tenure. Republicans are pitching the strong economy ahead of the November midterm elections, seeking to defend their congressional majorities.

Increasing interest rates could dampen top-line economic numbers, which could complicate the White House’s messaging. Interest rates hikes generally increase the cost of borrowing and financing, which can often suppress the stock market and prevent the unemployment rate from decreasing.

Trump has been open about his preference for low interest rates, which tend to boost the U.S. stock market. While he accused former Fed Chair Janet Yellen on the campaign trail of keeping rates low to juice inflate stocks for former President Obama, he praised Yellen’s monetary policy once he took office and considered renominating her.

Powell, first appointed to the Fed in 2012 by Obama, voted in lockstep with Yellen to increase interest rates at a slower rate than some economists had recommended.

Lawmakers have expressed concerns that Trump could try to pressure Powell to keep rates low ahead of the elections in a bid to keep unemployment low. His critics cite former President Nixon’s pressure on former Fed Chairman Arthur Burns to holds off on rate hikes ahead of the 1972 election, which economists say led to rampant inflation.

–Updated at 11:22 a.m.