Wednesday, 12 December, 2018

Trump says Fed ‘making a big mistake’ by being too aggressive

U.S. markets drop sharply as investors are spooked by rising rates Dow Jones plunges 800 points as tech stocks tumble
Ginger Lawrence | 12 October, 2018, 01:56

Those financial crisis-inspired programmes - such as quantitative easing - are now ending and the Fed has raised USA interest rates three times already this year - raising borrowing costs - and could add a fourth hike by the end of 2018.

The Fed has said strong economic performance in the USA means that the ultra-low rates put in place to spur economic activity after the 2008 financial crisis are no longer necessary. Powell, who took the Fed's top job in February, has presided over a series of interest rate hikes which have attracted Trump's criticism.

But one unintended outcome is that raising interest rates can scare off investors and precipitate a sell off in equities.

"We have interest rates going up at a clip that's much faster than certainly a lot of people, including myself, would have anticipated". "The problem in my opinion is the Fed, " he added.

Earlier on Tuesday, White House economist Kevin Hassett said the administration respects the Fed's independence and pointed to Trump's nominees to the central bank as evidence of its non-partisan approach to the setting of monetary policy. "I think what they're doing is wrong", Trump said.

Stocks have been under pressure since the yield on 10-year US Treasury bonds jumped above three percent last week, a sudden move that raised fears of an overheating economy, speeding inflation and more aggressive Federal Reserve interest rate increases.

Trump himself later told reporters he would not try to oust Powell, Trump's handpicked successor to former Fed chair Janet Yellen, and a well-regarded insider in moderate Republican circles. "But I think the Fed is far too stringent, and they're making a mistake, and it's not right".

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Trump's comments and the stock slide "won't be enough to prevent the "crazy" Fed from raising rates again in December", Capital Economics analysts wrote on Thursday after the last consumer price data, which, while slightly below expectations, were still roughly in line with the Fed's plans.

On Friday, federal data showed that the US jobless rate fell to 3.7 percent in September, it's lowest point since 1969. The S&P 500 remained near the lowest since July on Thursday morning, while the Nasdaq 100 rallied.

The turmoil on stock markets came a day after the International Monetary Fund slashed its global growth forecast on worries about trade wars and weakness in emerging markets.

Trump has levied or threatened tariffs on goods from economies around the world, notably China, but also on traditional allies such as the European Union.

Even so, one reason why the Fed has been raising interest rates even with little sign of an inflation breakout is because the unemployment rate, which fell to 3.7 per cent in September, is at a level that many officials expect will cause wage and price gains to accelerate over time. The president is not dictating policy to the Fed.

Stocks are in the midst of a scary October slump, sliding sharply because investors are anxious about rising interest rates. Higher interest rates could increase his debt payments considerably.