Federal Reserve in Trump's line of fire but unlikely to change course

Daniel Fowler
October 13, 2018

Mnuchin, speaking to reporters on the sidelines of the International Monetary Fund and World Bank annual meetings in Bali, also said that Chinese officials had told him that they did not want to see a further depreciation of the yuan's exchange rate, an issue that the USA has been very concerned about.

"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.

Trump previously criticized the Fed for allowing too much money into the economy in several tweets from 2011, before he became the president.

The US central bank once again is on the firing line following President Donald Trump's unprecedented attacks but is likely to shrug it off and focus on economic data.

Mnuchin, who praised Fed Chairman Jerome Powell, said the president understands that the Fed is doing its job. "But I think it's far too stringent far too fast".

"The Fed has gone insane", he told reporters on Wednesday as he arrived in Pennsylvania for a campaign rally.

The comments followed his strongest criticism of the Fed late Wednesday when he said the central bank had "gone insane".

Earlier on Tuesday, White House economist Kevin Hassett said the administration respects the Fed's independence and pointed to Trump's nominees to the central bank as evidence of its non-partisan approach to the setting of monetary policy.

Trump's statement comes after stocks plunged on Wednesday.

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The Fed has said strong economic performance in the U.S. means that the ultra-low rates put in place to spur economic activity after the 2008 financial crisis are no longer necessary. Unemployment in September fell to its lowest rate in almost half a century.

President Donald Trump tried to explain why the Dow Jones had a bad dip on Wednesday, and blamed the Federal Reserve Bank.

Global stock markets fell again on Thursday as investors anxious about signs of slowing growth, rising trade tensions and higher interest rates.

The last time average mortgage rates were near the 5 percent level was in April 2011. As interest rates go up, bonds, not equities, are starting to look more attractive to investors. But the logic behind the Fed policy is not founded on inflation. "Interest rates are still accommodative but we are gradually moving to a place where they will be neutral", he said, adding that the U.S. economy was a "long way from neutral (interest rates) at this point, probably".

Former Treasury Secretary Larry Summers said the economy was on a "sugar high" that had been fueling stock prices. But markets at the time reacted positively to the rate increases and continued to push upwards, reaching even higher valuations as the agency doubled down on rate increases When the markets did finally crash in 2007, the catalyst was not a further decline in Fed rates but the fall of investment bank Bear Stearns.

The sell-off came a day after the International Monetary Fund said the world economy is plateauing and cut its growth forecast for the first time in more than two years, blaming escalating trade tensions and stresses in emerging markets.

Last week's jump in yields followed strong United States data but many analysts have been anticipating a change in the dynamics in the bond market due to expectations that central banks in Europe and Japan will soon phase out bond-buying programmes. And tech stocks got hit particularly hard.

Trump and his advisers say business spending is going to drive sustained higher growth.

Although the drop was unusually large, the stock market has been on a historic run of gain since the president's inauguration.

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