“It’s a correction that I think is caused by the Federal Reserve with interest rates”, Trump said when asked by reporters in the Oval Office about the stock market swoon. Despite that, we’re doing very well but it’s not necessary, in my opinion. While he was generally upbeat about the U.S. economy, predicting that the good news could continue “effectively indefinitely”, when asked on October 3, 2018, what keeps him up at night, Powell said, “Basically everything”.
The Fed is walking a narrow path, raising rates to return to a more normal interest rate environment but trying to keep the pace below where it might impact economic growth. Hassett pointed to the six nominees Trump has made so far to serve on the Fed’s board of governors, all of whom have spent extensive time in finance, banking or academia.
Meanwhile, Europe’s main stock markets slid by around 1.5% at the start of trading today following heavier falls across Asia and on Wall Street overnight.
The law creating the Federal Reserve says the officials can be “removed for cause”.
The Fed, as you know, is gradually raising short-term rates to unwind the zero-percent rates it imposed in 2008-2009 to combat the financial crisis.
The Federal Reserve sets baseline interest rates for lending standards, which can have a massive effect on whether businesses expand or contract. Low interest rates fueled a housing boom until 2005, when the agency began a policy of rate increases to temper growth in an overheated economy. The president also selected Nellie Liang, a former Fed division director who is a Ph.D. economist with expertise in financial stability.
Does the market fear the Fed will respond to inflationary signals with more hikes than previously expected, maybe enough to hurt corporate profits, or dim the USA economy into recession?
Gundlach said the Fed has taken too long to lift rates, which he expects to continue to rise as USA deficits increase following tax cuts and budget growth. The 10 year U.S. Treasury, a key benchmark for rates, has been spiking and is now at 3.2 percent, one of its highest levels since just after the Great Recession. 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. Are interest rates too high?
But data since the Fed’s last meeting in September has been in line with the central bank’s portrait of an economy in which historically low unemployment will be coupled with inflation running near the central bank’s 2 percent target for the foreseeable future. The rate is an estimate and its calculation depends on a host of factors, including inflation and the state of the global economy. Tokyo’s Nikkei 225 gave up 3.9 percent and Hong Kong’s Hang Seng index shed 3.5 percent.
Experts from JP Morgan Chase International have publicly backed the Fed’s moves. “The Fed has gone insane”.
Fed watchers have also noted that the president’s barbs don’t fit with his own administration’s posture with respect to the Fed.
In the end, no amount of grousing will shake the perception, correct or not, that the President is responsible for the stock market.
The markets have been on a historic climb – with the Dow and S&P each notching dozens of new highs since 2016 – buoyed by a strong US economy and solid corporate earnings. “I think our nominees have been absolutely first rate”.