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Fed Officials Strike Defiant Pose Against Trump, Sending Yield Curve Back Into Inversion


Federal Reserve officials may not tweet their views of monetary policy but on Thursday they were happy to take to television interviews to challenge President Donald Trump’s view about the need for lower rates.

The heads of the Kansas City and Philadelphia Federal Reserve banks both said in interviews with CNBC that they thought the July rate cut was unnecessary and further cuts uncalled for. The bond market momentarily seemed to revolt, inverting the yield curve for the third time in eight days.

“My sense was we’ve added accommodation, and it wasn’t required in my view,” Kansas City Fed’s Esther George said. “With this very low unemployment rate, with wages rising, with the inflation rate staying close to the Fed’s target, I think we’re in a good place relative to the mandates that we’re asked to achieve.”

Just hours after the interview, the Kansas City reported that factory activity in August had contracted by the most since 2016. The IHS Markit manufacturing index showed that U.S. manufacturing had contracted for the first time in a decade.

The Philly Fed’s Patrick Harker also said he did not think that the July cut was appropriate and that the Fed should be on hold now.

“We’re roughly where neutral is. It’s hard to know exactly where neutral is, but I think we’re roughly where neutral is right now. And I think we should stay here for a while and see how things play out,” Harker said.

Even as Harker was making those comments, the 10-year Treasury rate fell below the 2-year rate, inverting the yield curve. This has often been a warning sign of an approaching recession and is widely viewed as an indicator that Fed will have to loosen monetary policy. A short time later, however, the curve un-inverted.

Both Harker and George spoke from Jackson Hole, Wyoming, where the Kansas City Fed is holding its annual research conference.