14 October, 2018
The rout caused a domino effect worldwide, with losses spreading to Asia and Europe on Thursday as investors remained concerned about rising rates - which would send more buyers out of equities and into bonds - as well as the impact of Trump's trade conflict with China on corporate profits. "I think the Fed is far too stringent, and they're making a mistake and it's not right". "The Fed is going wild". "Interest rates are still accommodative but we are gradually moving to a place where they will be neutral", he said, adding that the USA economy was a "long way from neutral (interest rates) at this point, probably".
"That's not the problem", he said of the trade standoff. "The problem I have is with the Fed", he said. "The Fed is going loco, and there's no reason for them to do it. So they [the Federal Reserve board of governors] are always questioning, 'Is now the time for us to act?' Hindsight is 20/20, but they have to make policy today".
What precipitated Trump's remarks was that the Federal Reserve - America's central bank - has increased interest rates three times just this year.
Despite a booming United States economy, low inflation and low unemployment, investors are concerned about rising bond yields that have been drawing money out of the stock market, and increased U.S. interest rates. Still, while many investors might not concur with Dr. Trump's diagnosis, they might tend to agree with the underlying sentiment: USA interest rate hikes are or are going to rain on the stock market's parade. "The dollar is very strong, very powerful and it causes difficulty in doing business".
"Markets go up. Markets go down", Mnuchin said on the sidelines of a meeting of global finance chiefs and central bankers hosted by the International Monetary Fund. Trump has imposed $200 billion in tariffs on China and is threatening to levy even more.
U.S. presidents have typically avoided commenting on the Federal Reserve's moves, wary of violating the Fed's independence.
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Fed Chair Jerome Powell, whom Trump named to lead the central bank, has repeatedly brushed off the comments saying officials do not pay attention to politics.
"Auto sales is another area we might expect to see some eventual slowing, as higher rates typically bite with a lag". At that time, the markets interpreted his comments to mean the Fed could become aggressive with the pace of its rate hikes this year and into next if it finds signs that inflation is heating up and threatening economic growth.
Does the market fear the Fed will respond to inflationary signals with more hikes than previously expected, maybe enough to hurt corporate profits, or dim the US economy into recession?
The precipitous fall of the market in previous days has alarmed Trump who had tethered his electoral fortunes to soaring stocks. The Fed under his hand-picked chairman Powell has been gradually raising rates as the economy has strengthened to prevent a run-up in inflation.
Mnuchin said he viewed the market turbulence as a "natural correction after the markets were up a lot" rather than a sharp plunge triggered by bad news on the economy.
"Diversification is like a shock absorber to weather the storms in the market", Jeanne Thompson, senior vice president at Fidelity Workplace Investing, told CBS MoneyWatch.
During an event earlier Wednesday amid the sell-off, Trump and his top economic adviser, Larry Kudlow, said they believed the American economy was robust.