Global stocks tumble after Trump 'crazy' Fed comment

Gladys Abbott
October 11, 2018

U.S. President Donald Trump said that Wednesday's stock market sell-off was in fact a long-awaited "correction", and that the Federal Reserve, which has been raising U.S. interest rates, had gone "crazy".

"The Fed is making a mistake", he told reporters on Wednesday as he arrived in Pennsylvania for a campaign rally. "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. A stock market correction is defined as a decline of at least 10 percent from the high point of the past 52 weeks, suggesting that major US indices have further to fall.

"It's a correction we have been waiting for a long time", Trump said. The S&P 500 was down 3.3 percent, and the Nasdaq saw losses of 4.1 percent.

As for whether Wednesday's overall market drop could signal an end to broader economic growth, Benedict says there won't necessarily be long-term affects if the markets can stabilize before the losses grow more severe.

Higher interest rates tend to moderate economic growth and makes borrowing more expensive for the USA government as well as businesses and consumers.

White House Press Secretary Sarah Huckabee Sanders said in a statement following the close of markets that the US economy is "incredibly strong" despite the sell-off. "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".

As Hurricane Michael pummeled Florida, Wall Street was battered by storms as well, with the Dow shedding about 830 points, in the biggest fall since February, to close the day at 25,498.74.

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There are a slew of worries for investors which have been building in recent weeks.

Trump's comments echo his previous criticisms of recent months, which broke more than two decades of White House tradition of avoiding comments on monetary policy out of respect for the independence of the USA central bank.

Fed Chairman Jerome Powell is aiming to extend the second-longest USA economic expansion on record by moving interest rates up just quickly enough to prevent overheating, but not so rapidly that the central bank chokes off growth.

Bourses in Paris and Frankfurt both lost more than two%, while London fell 1.3%.

"It's shifting the tectonic plates", said Jack Ablin, chief investment officer at Cresset Wealth Advisors.

The turmoil on stock markets came a day after the International Monetary Fund slashed its global growth forecast on worries about trade wars and weakness in emerging markets.

In other markets, oil prices fell sharply on worries that Hurricane Michael, which is battering the USA state of Florida, will dent demand for gasoline and other petroleum products.

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