Trump Calls Stock Sell-Off 'A Correction,' Says Federal Reserve is 'Crazy'

Gladys Abbott
October 16, 2018

"And all the earmarks of a bust are developing", said Mark Zandi, chief economist of Moody's Analytics.

Trump was briefed on the market turmoil earlier in the day, a White House official said.

The Fed has raised interest rates eight times since the end of 2015, including twice in 2018, taking the Fed Funds rate range to between 2% and 2.25%.

The Fed is expected to raise its benchmark rate once more this year and three times in 2019.

"The economy is red-hot and threatens to fry".

"Part of President Trump's brand is he says what he thinks, but he respects the independence of the Fed and that's clear from his nominations", Hassett said at Council on Foreign Relations on Tuesday. Powell said rates are not close to "neutral", the level where the Fed is neither hitting the gas nor the brakes on the economy. Hassett pointed to the six nominees Trump has made so far to serve on the Fed's board of governors, all of whom have spent extensive time in finance, banking or academia. On Thursday, he told Fox News the central bank "is going loco".

Now, explaining market actions through psychology is probably as much a mug's game as psychoanalyzing a Fed chair from afar.

"The Fed doesn't have the luxury of moving much slower".

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Mr. Williams nodded toward some of the worldwide concerns about the spillover effects of Fed rate rises by noting that the central bank has a domestic mandate, while adding it does very much take on board how its policies affect other nations. Some 30-year fixed-rate mortgages are now offered with an interest rate above 5 per cent, significantly higher than when Trump took office. There are two Trump Fed picks with Wall Street experience, Randal Quarles, the vice chairman of supervision, and Powell.

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. An increase in interest rates makes debt more expensive, while a corresponding decrease can make it cheaper. A growing number of major USA companies have complained about the trouble caused by Trump's tariffs on China - and retaliatory tariffsby Beijing.

Is a recession coming soon?

But it amounts to good news for the long-term direction of the economy. And wage growth actually decelerated a bit in September.

"He is an individual that really understands the plumbing of the USA and global financial systems and one example is the reforms that are going underway on London Interbank Offered Rate, or Libor, for which he is one of the main sponsors", said Carney. Emerging Markets, as well as Italy, seem to be particularly at risk.

"We are in an economic boom most folks thought was impossible", Larry Kudlow, Trump's top economic adviser, told CNBC on Thursday. "I see this as a normal correction". He was expressing his angst at the declines and assigning blame to the Fed, having posted dozens of congratulatory tweets about the stock market's record highs.

Zandi doesn't think so. Washington is borrowing heavily to pay for the corporate tax cut and a surge of government spending. "However, with the strength of the U.S. economy and core PCE, the Fed's favourite inflation metric, now in line with its 2% target, the Fed's decision to move away from the ultra-easy monetary policy that characterised the years following the financial crisis is arguably justified".

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