Thursday, 18 October, 2018

'The Fed has gone crazy' with interest rate hikes

Global stocks tumble after Trump 'crazy' Fed comment Mnuchin Says U.S. Markets ‘Correction’ Is Not Very Surprising
Nellie Chapman | 11 October, 2018, 15:54

"I think the Fed is making a mistake".

"The Fed has gone insane", Mr. Trump told reporters while traveling to Erie, Pennsylvania, for a campaign rally.

President Trump blamed the Federal Reserve - and his appointee Jerome H. Powell - for the big drop Wednesday.

"The markets are fraught with peril", warned Stephen Innes, head of trading at OANDA, adding there was a "horrible intersection of risk aversion" from the US-China trade conflict and rising US interest rates. "But I think the fed has gone insane".

But he downplayed the first major drop in months, saying, "it's a correction that we've been waiting for a long time". "But I really disagree with what the Fed is doing, OK?"

The Dow Jones Industrial Average plummeted 832 points on Wednesday, recording its largest single-day point drop since February.

At market close on Wednesday, the Dow (^DJI) lost 3.15%, or 831.83 points, and the S&P 500 (^GSPC) fell 3.29%, or 94.66 points.

Trump has slapped tariffs on $250 billion in Chinese goods this year, and Beijing has retaliated with levies $110 billion of American products. The IMF projections don't take into account Trump's threat to expand the tariffs to effectively all of the more than $500 billion in goods the US bought from China past year.

The Federal Reserve sets baseline interest rates for lending standards, which can have a massive effect on whether businesses expand or contract.

Even so, one reason why the Fed has been raising interest rates even with little sign of an inflation breakout is because the unemployment rate, which fell to 3.7 per cent in September, is at a level that many officials expect will cause wage and price gains to accelerate over time.

Fed spokeswoman Michelle Smith declined to comment on Trump's remarks.

"I like low interest rates".

He said he didn't think the current rate of U.S inflation merits higher borrowing costs.

"There are a number of worries for investors right now, from the pace of rising bond yields and the impact on investor sentiment, to Italy's populist coalition playing a game of chicken with the European Commission, stalling Brexit negotiations and the ongoing trade conflict between the U.S. and China", said Craig Erlam, senior market analyst at Oanda trading group.

US President Donald Trump speaks during a briefing on Hurricane Michael in the Oval Office of the White House in Washington, DC, October 10, 2018.

Stocks have been under pressure since the yield on 10-year US Treasury bonds jumped above three percent last week, a sudden move that raised fears of an overheating economy, speeding inflation and more aggressive Federal Reserve rate hikes.

The markets have been on a historic climb - with the Dow and S&P each notching dozens of new highs since 2016 - buoyed by a strong US economy and solid corporate earnings.

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.