Trump: Fed is US economys only problem

US President Donald Trump looks on as Jerome Powell, his nominee to become chairman of the US Federal Reserve, speaks at the White House on 2 November 2017Image copyright

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The president reportedly wanted to fire Fed chairman Jerome Powell, but he does not have the ability to do so

President Donald Trump has lashed out at the US central bank for stock market turmoil, saying the American economy’s only problem is the Fed itself.

In a tweet, Mr Trump said the Federal Reserve lacks understanding of markets and “necessary trade wars”.

The salvo came as Mr Trump’s treasury secretary scrambles to calm nervous investors.

The Dow Jones fell 400 points on Monday, before recovering slightly. Last week was its worst in a decade.

The sharp decline comes amid a partial government shutdown, US-China trade tensions and reports the president has discussed firing Fed chairman Jerome Powell.

On Sunday US Treasury Secretary Steven Mnuchin took the unusual step of calling the chief executives of America’s six largest banks in a bid to soothe market jitters.

On Monday, he was calling top market regulators and officials from the US central bank to allay fears about the economy.

Mr Mnuchin will speak with the President’s Working Group to “discuss co-ordination efforts to assure normal market operations”, according a treasury statement.

Market regulators, the board of governors of the US Federal Reserve System, the Securities and Exchange Commission and the Commodities Futures Trading Commission are among members of the working group.

Federal Deposit Insurance officials and the office of the Comptroller of the Currency were also invited to Monday’s call.

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Treasury Secretary Steven Mnuchin said on Sunday banks had “ample liquidity”

What did the US Treasury say?

A statement from the treasury on Sunday divulged details of Mr Mnuchin’s discussions with the top US banks – a rare step for the department.

“The [bank’s chief executives] confirmed that they have ample liquidity available for lending to consumer, business markets, and all other market operations,” the Treasury statement said.

The banks also confirmed “that they have not experienced any clearance or margin issues, and that the markets continue to function properly”.

“We continue to see strong economic growth in the US,” Mr Mnuchin added.

He said even with the partial government shutdown, the Treasury will have employees to maintain “critical functions”.

Earlier, Mr Mnuchin tried to dismiss reports that President Trump had discussed the possibility of firing the Federal Reserve chairman, after the bank raised interest rates last week.

The US treasury secretary tweeted that he had spoken to the president, who insisted he “never suggested firing” Jerome Powell and did not believe he had the right to do so.

Why are investors worried?

All three US indexes closed lower last week, with the technology-focused Nasdaq down 20% since its peak, placing it in so-called “bear market” territory.

On Monday, a half-day for US markets, the slump continued.

US investors are worried about a range of factors including slowing economic growth at home and internationally, though US economic data is still strong.

Mr Trump’s ongoing trade war with China as well as Defence Secretary Jim Mattis’ surprise resignation have also unsettled investors.

In addition, a partial US government shutdown began at midnight on Friday after Congress refused to fund President Trump’s planned US-Mexico border wall.

The shutdown could continue until the opening of the next Congress on 3 January.

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Did Mnuchin spook markets?

Some financial pundits warned that Mr Mnuchin’s statement could backfire by alarming investors instead of assuaging their fears.

Jared Bernstein, who was economic adviser to former US Vice-President Joe Biden, told the Washington Post: “The markets are already nervous enough.

“It’s like sending out a message saying our space shields can intercept incoming asteroids. Uh, I didn’t know there were any coming our way.”

Oliver Pursche, a board member at Bruderman Asset Management, said: “More than anything else right now, Washington and politics are absolutely driving investor sentiment and market direction and that can turn on a dime.”

Win Thin, head of global currency strategy at Brown Brothers Harriman, said that until Mr Mnuchin’s statement, “markets were not that concerned about liquidity or clearance issues”, the Financial Times reported.

“At best, Mnuchin made a rookie policy mistake in trying to reassure markets; at worst, Mnuchin knows something that the markets don’t.”

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