Economy

Trump calls 'loco' Federal Reserve 'too aggressive'

Trump calls 'loco' Federal Reserve 'too aggressive'

"They're so tight. I think the Fed has gone insane", Trump said in Pennsylvania before a political rally. "But I think it's far too stringent far too fast".

The broad USA stock market sell-off Wednesday took the S&P 500 to the lowest in three months, the Dow Jones Industrial Average plunged as much as 836 points and the Nasdaq 100 Index tumbled more than 4 percent for its worst day in seven years.

Trump, who has frequently invoked rising stock prices as an affirmation of his economic policies, downplayed the significance of the market drop even as he pointed the finger at the Fed.

Mnuchin said in the discussions he had with the Chinese they had made clear that they did not see a further weakening of the Chinese yuan as being in their interests. "Interest rates are still accommodative but we are gradually moving to a place where they will be neutral", he said, adding that the U.S. economy was a "long way from neutral (interest rates) at this point, probably". And the higher that "bond vigilantes" expect inflation to be, the higher the interest rate they will demand to offset erosion of the money they invest in long-term securities.

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.

While we have become used to the sound of President Trump of saying what he thinks, his change of tone comes across as rather unseemly at a time when G7 leaders generally refrain from criticising their central bankers.

Trump's public criticism of the Federal Reserve, whose chairman, Jerome Powell, Trump appointed, is a sharp departure from his recent predecessors.

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But history and precedent tell us that the Fed's ability to cause a sudden stock market crash may actually be limited.

"The markets are fraught with peril", warned Stephen Innes, head of trading at OANDA, adding there was a "horrible intersection of risk aversion" from the US-China trade conflict and rising US interest rates. The problem I have is with the Fed. The data suggest there's little sense that interest rates are biting down on their business outlook. "But I really disagree with what the Fed is doing, okay?"

The president told reporters Wednesday that he believed the drop was a correction, and that the Federal Reserve Bank was to blame for raising interest rates. "They are going to do what they are going to do". On Tuesday, 10-year Treasury yields hit a seven-year intraday high of 3.26 per cent, up more than 15 basis points from October 1.

"Higher interest rates need not be a threat - they can and should be taken as a sign of economic strength", said Carl Tannenbaum, chief economist for Northern Trust. The US economy is strong, US earnings are strong. So the jobs data might have suggested to the market that the Fed would accelerate its rate-hiking cycle, beyond one more in December and three more next year, as it implied in its policy meeting on September 26.

While he acknowledged that higher rates helped savers, he criticized the Federal Reserve's tactics. "The Fed is going loco and there is no reason for them to do it and I'm not happy about it".

And while stocks could get a boost from strong corporate earnings, there are concerns the United States trade conflicts will start to undermine profits.


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