Trump said Thursday he wouldn’t fire Fed Chairman Jerome Powell, although he added he knew more about interest rate policy than the Fed does. It is often tied to higher costs of borrowing for the federal government, which can spook investors.
The result is that numerous economic forecasters expect slower growth next year and beyond and beyond, and some are even warning of the possibility of a recession in 2020.
So, no, the rout wasn’t caused by growing worry over Trump’s trade wars, which the International Monetary Fund cited in cutting its outlook for global growth on Tuesday. This implies they now see a greater possibility that growth and short-term interest rates could surprise by rising faster than forecasters now project. It expects 2.9 percent USA growth this year.
Crises usually start in smaller places, and this has already begun. “That supports current market valuations for this year, [but] what about 2019?”
If you look at their economy now, it’s a whole different ball game. For one thing, it was yet another sign of more Fed hikes to come. When interest rates rise, bond yields typically do as well as investors pull money out of stocks and move them into bonds to capitalize on the higher (and safer) returns. “Americans are not stupid people”.
Put another way, very low real interest rates favor borrowers over savers.
In the end, no amount of grousing will shake the perception, correct or not, that the President is responsible for the stock market.
In many ways, the markets and economy are in unchartered territory. Never mind that Trump has been president for fewer than two years of a nine-plus year bull market. That strength is in part fueled by tax cuts and federal spending increases signed by Trump.
The president’s remarks were quickly qualified by National Economic Council Director Larry Kudlow, who said the Fed was “on target” in policies that were responding to a strong economy.
Financing expenses are one of a business’s chief costs, higher interest rates squeeze profit margins and activities that might have been profitable at lower interest rates, including hiring, become marginable of unprofitable, and do not take place.
Unlike the hardliners on China in the White House such as Peter Navarro, Mnuchin is a free trader. Meanwhile, Ford says that it anticipates about twenty thousand in layoffs and $1 billion in losses thanks to Trump’s tariffs. “It’s so tight. I think the Fed has gone insane”, Trump told reporters shortly after markets closed, as he arrived in Erie, Pennsylvania for a rally. “The capital spending boom is happening nearly exactly according to our models”.
It was the latest in series of recent barrages the president has unleashed at the Fed, which under his hand-picked chairman, Jerome Powell, has been gradually raising rates as the economy has strengthened to prevent a run-up in inflation. However, during his last press conference following the Federal Open Market Committee’s most recent two-day meeting in September, Powell said he and his colleagues were focused on carrying out the bank’s dual mandate of achieving maximum employment and stable prices. The Fed now predicts growth of 3.1 percent this year, slowing to 2.5 percent next and 2 percent in 2020.
The comments followed his strongest criticism of the Fed late Wednesday when he said the central bank had “gone insane”.
“We’re quite removed from the political process”, Powell said in an interview last week at the Atlantic Festival in Washington. USA earnings are strong.
US interest rates have been on a steady march higher for two years.
The president said the markets were way up over what they were.
In short, bond prices could have further to fall. Powell has his on longer-term economic stability.
Correction: A previous version of this story misspelled the name of Rajeev Dhawan.