Phelan: Rate Hike Today Would Be a Mistake for the Fed

Christopher Phelan, who leads the Council of Economic Advisers (CEA), stated that a rate hike by the Federal Reserve would be an error. The central bank is scheduled to reveal its rate decision later today.

The CEA chair spoke on CNBC's Closing Bell Overtime, pointing to the latest inflation figures as the basis for his view that a hike is not warranted. The Federal Open Market Committee (FOMC), which sets rates for the Fed, is holding its gathering this week.

Recent Inflation Readings Weaken the Case for a Move

In his remarks, Phelan noted that inflation has declined during the last three months. He referenced all the main indicators, from the Consumer Price Index (CPI) to the Personal Consumption Expenditures (PCE) measure.

He also recalled that the Fed chose not to lift rates several months ago when price pressures were greater. Raising them now, he argued, becomes much harder to defend.

The discussion unfolds as President Donald Trump has urged the Fed to cut borrowing costs. A rate increase would run counter to the direction Trump has openly supported.

“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

Potential Market Effects of a Rate Increase

Phelan's remarks arrive as Bitcoin's chances of a Fed hike this week grow. Traders have begun treating such an outcome as a drag on riskier assets.

An environment of higher rates generally weighs on Bitcoin (BTC), since non-yielding holdings lose appeal compared with bonds.

Fed Chairman Kevin Warsh has warned that the era of cheap money is drawing to a close. He has also suggested that the fight against inflation is not over, a position that Phelan disputed.

Observers of the central bank anticipate another tight division within the committee. That pattern emerged in July, when the FOMC voted nine to three to hold rates steady.

Warsh's choice between backing Phelan's view on inflation or aligning with colleagues pushing for a hike will determine the path of borrowing costs. It will also influence how much risk investors are willing to take in the coming days.

Attention will turn to Warsh's press conference for clues about the final outcome.