Christopher Phelan, chairman of the Council of Economic Advisers (CEA), said a Fed rate hike would be a mistake. The Federal Reserve is set to announce its rate decision today.
Phelan made the comments on CNBC’s Closing Bell Overtime, citing recent inflation data as the reason a hike is unnecessary. The Federal Open Market Committee (FOMC), the Fed’s rate-setting body, meets this week.
Inflation Data Undercuts the Case for a Hike
Phelan argued inflation has trended lower over the past three months. He pointed to every major gauge, including the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) index.
He noted the Fed held off on raising rates months ago when inflation ran hotter. That makes a hike now harder to justify, he said.
The debate comes as President Donald Trump has pushed the Fed to lower interest rates. A hike would move policy in the opposite direction Trump has publicly favored.
“No matter how you measure it, inflation is coming down. They didn’t choose to raise rates 3 months ago when inflation was higher. It doesn’t make sense to raise rates now in my view.”
Christopher Phelan, Chairman of the Council of Economic Advisers, via CNBC
What a Hike Would Mean for Markets
Phelan’s comments land as Bitcoin faces rising odds of a Fed hike this week. Traders have priced that scenario as a headwind for risk assets.
Higher rates tend to pressure Bitcoin (BTC) by making non-yielding assets less attractive next to bonds.
Fed Chairman Kevin Warsh has said the cheap-money era is ending. He has also signaled the Fed still has work to do on inflation, a stance Phelan pushed back against.
Fed watchers expect the committee to be closely divided again. A similar split emerged at the FOMC’s July meeting, when the panel held rates steady by a nine-to-three vote.
Whether Warsh sides with Phelan’s inflation reading, or with FOMC members favoring a hike, will shape borrowing costs. It will also shape risk appetite across markets in the sessions ahead.
Markets will watch Warsh’s press conference closely for signals on the final vote.
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