Trump’s unusual Fed bashing raises the stakes of a policy blunder that damages the economy – Finance

  • President Donald Trump accuses the Federal Reserve of stock market sale,
  • Although it is unusual for the US president to publicly loosen the Fed, many investors agree that concerns about higher interest rates are partly responsible for volatility.
  • Choosing himself against the Fed, Trump raises monetary policy rates.

President Donald Trump is not known by words. And this week he offered his sharpest rebuke Federal Reserve,

"I think Fed went crazy"Trump said on Wednesday about raising the interest rate of the Federal Reserve System." On Thursday, he told Fox News that the central bank "is the locomotive. " He also said that he was not going to dismiss Fed Chairman Jerome Powell.

Trump said this after the longest runway in the stock market declined from the time of the election until November 2016. He expressed his dissatisfaction with the decline and laid the blame on the Fed, publishing dozens of greeting tweets about record highs in the stock market.

It is not clear that US presidents publicly violated the Fed policy. But, echoing the concerns of some investors about higher borrowing costs, he raised rates for the central bank so as not to make a political mistake that damages the economy.

Powell blew investors ’latest concerns about raising interest rates last week on Thursday, when he said in his speech that the Fed is“ a long way from neutral. ” He mentioned a neutral interest rate, which neither slows nor accelerates the economy.

“Today’s fall in confidence may be justified if the Federal Reserve reports that it weakens its quantitative tightening, and the growth rate rises,” said Jasper Lawler, head of research and education at London Capital Group, on Thursday.

“But the Powell Fed showed more confidence in the face of market uncertainty, and we do not expect any changes in tone. We expect the Fed to hold onto the trip. ”

Fed is expected raise your base rate again this year and three times in 2019.

Powell "dropped market expectations"

Parts of the economy and the stock market that are sensitive to higher interest rates are also useful for assessing the impact of Fed policies.

“We are already seeing some softness in high-sensitive segments of the economy, such as the housing sector, where real estate prices have slowed down somewhat and fewer new houses are built in the new cycle than before,” said Rick Rieder, head of global investment officer. BlackRock's income, in a note on Thursday.

“Car sales are another area that we may expect, we will see some possible slowdown, as higher rates usually bite with a lag.”

The Fed pays close attention to how financial markets react to rate hikes, and equally monitors economic data. Since the rate hike started at the end of 2015, the S & P 500 received about 40%, suggesting that this could be another brief episode of volatility. In addition, inflation remained close to the Fed's 2% target.

“Until now, the economy has been doing very well and very much in line with our expectations,” said Powell at his last press conference in September.

However, some investors, and now Trump, are worried that the Fed is not red flags appear in financial markets and in some parts of the economy.

“Powell’s potential expectations are waiting for market expectations … when he surprised the market by suggesting that the Fed could eventually break through a neutral rate, and this very acceptable policy no longer suits this environment,” said Michael Aarone, chief investment strategist for the US business. SPDR at State Street Global Advisors.

“What is happening now is that for every major economic issue investors are looking for data, whether they confirm what Powell said or contrasts with what Powell said,” said Business Insider to Aarone.

In other words, they will search whether Powell is right. And getting into the debate, Trump raised the stakes even higher for the Fed to get it right.

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