Trump says he knows economy better than Federal Reserve chair

Daniel Fowler
October 12, 2018

President Donald Trump blamed the Federal Reserve for Wednesday's 832-point stock dive.

"I think I know about it better than they do", Mr. Trump said, again criticizing Fed interest-rate hikes.

The Dow dropped more than 800 points in one of the worst sell-offs since February as investors anxious that sharply rising rates would constrain the nation's historic economic expansion. That in turn affects the cost of mortgages, auto loans, corporate debt and other borrowing.

"Clearly stocks are spooked by higher rates and maybe some inflation that seems to be creeping in", said Michael Farr, CEO of Farr, Miller & Washington. "That suggests the Fed will keep raising rates, and that's taking the wind out of the stocks that have done the most, particularly in the tech sector".

Among investors in federal funds futures, continued Fed rate hikes remained a solid bet, with a December increase assigned a 78 percent probability - down only 3 percentage points from before Wednesday's market turmoil and Trump's comments.

US stocks tumbled yesterday, with the S&P 500 and the Dow marking their biggest daily declines since February 8, and technology stocks were at the centre of the carnage as rising US Treasury yields sent investors fleeing from risky assets. The Standard and Poor's 500-stock index was approaching its longest losing streak in two years. For instance, Netflix remains up almost 70 percent for the year, despite the recent decline.

"The markets are bringing up their expectations for growth, and have been bringing them up all year", Perli said. There is no indication that the current or projected interest rates are affecting US economic growth.

After the huge sell-off yesterday and further losses in Asian and European markets, USA stocks fell again Thursday at the opening bell.

Mnuchin's calm was echoed by Federal Reserve officials and other global policy makers as the fall in USA equities extended to Asia on Thursday.

"The fundamentals and future of the US 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.

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The central bank's preferred measure of inflation is roughly at policy makers' 2 percent objective, and Powell said last week that "the outlook of forecasters inside and outside the Fed is for more of the same".

For example, inflation of 2.16 percent a year over the coming decade is implied by the current price gap between the two types of bonds, up only a smidgen since August and below its level in May.

Interest rates are rising. It was at just 3.05 percent early last week.

President Donald Trump slammed the Federal Reserve as "crazy" for its interest-rate increases this year in comments hours after the worst USA stock market sell-off since February.

United States investors are suffering their biggest losses since February which have escalated tensions between Trump and Powell. He said, "I think the Fed is making a mistake". "The Fed has gone insane".

As the target rate rises, it costs more for businesses to invest and for consumers to buy goods, which tends to slow the economy and reduce inflation. "The Fed will stay on a measured pace".

In fact it is his policies that are behind the changes: tax cuts and spending policies are expected to juice the economy, adding to the Fed's justification to raise interest rates, while trade conflicts raise costs for companies, which could hit the bottom line in quarterly earnings - something analysts said helped prompt Wednesday's sell-off.

Overnight, Chinese stocks fell 5 percent while South Korean and Japanese stocks lost around 4 percent.

Sears nosedived after the Wall Street Journal reported that the struggling retailer hired an advisory firm to prepare a bankruptcy filing that could come within days.

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