Trump says market drop is 'correction that we've been waiting for'

Jeannie Matthews
October 13, 2018

That is bad news for homebuyers and other prospective borrowers.

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.

White House press secretary Sarah Sanders downplayed Wednesday's steep sell-off on Wall Street, noting the USA economy remains in good shape. In Paris, shares in Kering fell almost 10 percent, LVMH over seven percent and Hermes around five percent. "I just don't think it's necessary to go as fast". Since the close of Wednesday's trading session on Wall Street he has called the Fed "crazy", "loco", "ridiculous", and "too cute", while saying its rate increases are "too aggressive", and "a big mistake". As a result, bond yields rose (and bond prices fell, since they move inversely to yields). It has shed 1,378 points over the past two days.

The central bank "is too tight", he added. "It's reflecting the possibility that this recovery has further legs".

And while borrowers lament higher interest rates, savers, especially seniors, are celebrating that they can finally earn some interest from their savings accounts.

The yields of inflation-protected bonds have moved mostly in lock step with traditional bonds in recent weeks, suggesting that traders haven't become more anxious about inflation.

Said Thompson: "We suggest that people check their portfolios at least once or twice a year to check to make sure that you are well diversified - that you have the comfort and the time to sit it out and ride it out until it comes back". Presidents for more than two decades had avoided public comments on the Fed's interest-rate policies as a way of demonstrating respect for the institution's independence. Powell said last week he expects to stick with the current path of gradual interest-rate hikes while monitoring risks in the economy.

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In previous years, financial markets have been doubtful that the Fed would follow through with its forecasts for rate increases. But until this summer, he had lodged no criticism of the Fed's rate hikes.

White House officials, including Mr Trump, have dismissed the declines as standard corrections after a long run of rising share prices.

The policy could eventually bite harder into parts of the economy that are both sensitive to interest rates and connected to politically important industries, such as autos and home construction and sales.

"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 IMF cited Trump's tariffs and rising interest rates. "The trend is clearly up, and the market is betting that will continue". "The fundamentals and future of the USA economy remain incredibly strong", she said, pointing to a 50-year low in unemployment, tax cuts, reduced regulatory burdens, bigger paychecks, and new trade deals that have specifically benefitted farmers, ranchers, and manufacturers.

Of course, there are downsides to the higher rates.

The US stock market sell-off last night saw the S&P 500 and the Dow marking their biggest daily declines since February 8 with technology stocks at the centre of the falls. Some 30-year fixed-rate mortgages are now offered with an interest rate above 5 per cent, significantly higher than when Trump took office. Experts say not to panic because the market was overdue to let off some froth, but it's a noticeable shift in sentiment after months of investors shrugging off any political or trade turmoil. Unemployment in September fell to its lowest rate in almost half a century.

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