Central Bankers Defend Fed After Trump Accuses It of ‘Going Loco’

Jeannie Matthews
October 15, 2018

The broad US 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.

By pitting himself against the Fed, Trump is raising the stakes of a monetary-policy error.

Trump also described Wednesday's market drop as "a correction".

The U.S. Federal Reserve is plum loco.

After US stocks suffered their worst sell-off in eight months on Wednesday, President Donald Trump blasted the Fed as "crazy" for continuing to raise interest rates this year.

While he refused to make specific comments about it, he argued that there was "no mixed message" between his reticence and the sharp criticism Donald Trump levelled at the United States central bank last week. Nope, it's the insane ol' Fed under that chair Jerome Powell.

A stock market correction is defined as a decline of at least 10% from the high point of the past 52 weeks, suggesting that major USA indices have further to fall. A spike in yields on USA 10-Year Treasury bonds, which are hovering at a more-than-seven-year high, has investors wondering if the near-decade-old bull market in stocks may finally be ending. The central bank has hiked interest rates three times this year and expects to do so again in December.

Mr Trump doubled down on his attacks on the Federal Reserve Thursday, saying they were "making a big mistake" and were "out of control" in raising interest rates. "They emphasised to me that it is not in their interest to see the [yuan] continue to depreciate".

"The current dip in confidence can be allayed were the Federal Reserve to signal it is easing off its quantitative tightening and rates rises", said Jasper Lawler, the head of research and education at London Capital Group, in a note on Thursday.

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That makes it even more important for the Fed to be watchful for inflation. He frequently celebrates publicly when the stock market reaches new highs, pointing to the gains as affirmation for his economic policies.

A spike in Treasury yields and solid USA economic data have sparked concerns that the Federal Reserve may pick up the pace of its interest rate hikes.

And the housing sector is especially sensitive to the longer-term interest rates set on the bond market, which in turn determine mortgage rates.

There's nothing like watching the stock market take a trillion-dollar one-day loss to get your attention. But until this summer, he had lodged no criticism of the Fed's rate hikes. Also, inflation has remained near the Fed's 2% objective.

FILE PHOTO: U.S. Federal Reserve Chairman Jerome Powell holds a news conference following a two-day Federal Open Market Committee (FOMC) policy meeting in Washington, U.S., September 26, 2018.

However, some investors - and now Trump - are anxious that the Fed is unmoved by the red flags popping up in financial markets and some corners of the economy.

Fed officials including Powell, Trump's handpicked chair, have said pointedly that they will not be influenced by comments from elected officials, and will make decisions based on economic data.

"What is happening now is that for every major economic release, investors are looking for data, whether it confirms what Powell said or contrasts what Powell has said", Arone told Business Insider.

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