Federal Reserve

Yellen is afraid of Donald Trump, strategist says

The Fed has wanted to raise rates for a long time: Pro

The U.S. Federal Reserve has painted itself into a corner when it comes to interest rates and is being affected by rhetoric from the Republican presidential candidate Donald Trump, according to Michael Harris, head of research at investment banking firm Renaissance Capital.

"(Fed Chair Janet Yellen) says that she won't go into politics, she won't go into politics, she won't discuss it. But I think the reality of the situation is she's afraid of Donald Trump," he told CNBC Thursday.

Trump has previously slammed the Federal Reserve, saying it's doing what President Barack Obama wants by keeping interest rates low. He told CNBC this month that Yellen should be "ashamed" of what she's doing to the country.

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However, Harris believes that Trump would attack the Fed even if it did raise rates because he's desperately seeking to pick up extra votes ahead of presidential elections in November. The interpretation that the Fed not hiking plays into Donald Trump's hands is absurd because that's going to be a "yawner" at the debates, Harris said.

"He'll (Trump) fish, he'll try for a day or two if it doesn't work he'll move on. So the fact that he's already attacked the Fed for not hiking, he knows they're not going to hike, so he's trying to get some mileage out of it, but that's not exciting," he said.

"He's hoping that they hike, he would have loved it yesterday (Wednesday) because he would have just torn into Yellen and make it an issue because Larry Summers would be sitting in one of these seats talking about how Trump's actually right," he added, referring to former Treasury Secretary Summers who went on a Twitter rant Wednesday on why the Fed should not raise interest rates in September or even this year.

The Federal Reserve, like many other central banks, is an independent government agency in the U.S. and Yellen herself countered claims on Wednesday following the bank's decision to keep interest rates on hold.

"I can emphatically say that partisan politics plays no role in our decisions," Yellen told reporters after the Federal Open Market Committee's two-day policy meeting.

Harris at Renaissance Capital explained that the Fed has handicapped itself by not hiking rates earlier in the year. He believes that the anomalies in the May payrolls number was miscommunicated and suggests the Fed could still have hiked in the summer despite the shock result of the U.K. referendum on its EU membership.