Trump gives a hit in the feeding while the actions fall
Trump gives a hit in the feeding while the actions fall
President Trump put the Federal Reserve in the middle of Wednesday Massive sale of the stock market A few minutes after the White House issued a statement minimizing the solid economic fundamentals.
"The Fed is making a mistake," Trump told reporters in Erie, Pa., After stock markets suffered their biggest decline in more than seven months. "I think the Fed has gone crazy."
Mr. Trump he has complained for weeks about the central bank's campaign to gradually raise short-term rates, what the Fed has been doing to protect itself against inflation and economic overheating. Wednesday's comments were the first time he said the Fed had been responsible for inflicting losses on the market.
President Trump speaks with reporters after arriving at Erie International Airport for a campaign rally in Erie, Pa., On Wednesday.
Photo:
Evan Vucci / Associated Press
Of the stock exchange, he said, "Actually, it's a correction we've been waiting for a long time, but I really do not agree with what the Fed is doing, okay?
The Fed has raised its benchmark short-term interest rate three times this year, more recently last month by a quarter of a percentage point at a range between 2% and 2.25%. Officials have indicated that they expect another percentage point in the rate increases to keep the economy in balance until 2019.
Earlier Wednesday, the White House said in a statement that "the fundamentals and the future of the US economy are still incredibly strong," and marked positive news about employment and other measures.
Mr. Trump has regularly pointed out the gains of the stock market as a validation of his economic policies.
A spokeswoman for the Fed declined to comment on Wednesday. Fed President Jerome Powellhe said last week The Fed's nine-person rate setting committee is guided solely by its reading of economic data when it creates a consensus on where to set its policy rate. "This is just who we are and, I think, who we will always be," he said, dismissing concerns that the policy would go into the decision-making of officials.
Expectations of stronger growth are one of the reasons why stock investors have followed the bond markets to realign their expectations of how much more the interest rate on the Federal Reserve will increase.
The Fed will go further than previously expected, investors believe more and more, although policy expectations within the Fed itself have not changed markedly in recent weeks.
Bond markets plummeted last week, generating long-term Treasury yields after a series of solid economic data provided stronger evidence that the Fed could continue raising rates.
An increase in the supply of Treasury debt, derived from a growing deficit in the federal budget, is another reason why analysts say that yields have increased this year. Last week, benchmark 10-year Treasury yields rose to their highest levels since May 2011, as investors took more seriously the prospect of future rate increases amidst stronger economic growth.
For most of the last two years, investors have generally expected fewer increases in short-term rates than those indicated in quarterly projections by central bank officials themselves.
When the Fed increases rates, it is trying to influence financial conditions, as reflected in the values of stocks, bonds, currencies, real estate and other assets. Until recently, these conditions remained easy, which made stocks and bonds more valuable, although the Fed began raising short-term interest rates three years ago.
The 10-year yield, which incorporates expectations of interest rates, inflation, economic growth and other factors, rose to 3,227% last Friday, a maximum of seven years, as investors began to anticipate that the Fed would offer more rate increases.
"There is a price review in progress. It's not that big, "said Roberto Perli, an analyst at Cornerstone Macro.
On Wednesday, it was the turn of the stock market to adjust their expectations. "There is a belated acceptance of the Fed's certainty that they can reach 3.25% without slowing down the economy," said Jim Vogel, interest rate strategist at FTN Financial.
Fed officials have not telegraphed changes to their rate strategy in recent days, but have tightened their plans to keep raising rates.
Last week, Fed Chairman Jerome Powell noted that the central bank "probably" had a "long way to go" before its short-term reference interest rate could be considered neutral, which means that it does not it is so low as to stimulate very rapid growth OR so high that it is slowing growth. His suggestion that he was far from neutral could be taken as a sign that more rate hikes are coming, although several Fed analysts said the markets had overreacted to his comment.
Then, on Wednesday, New York Fed President John Williams said he believed that the current quarterly path of central bank rate increases would reach such a neutral setting in "next year or so," another indication of that there will be more rate increases.
The comments helped to dismantle market speculation that had dragged this summer on the central bank's potential to stop its campaign to raise rates before mid-2019.
An important factor for the Fed will be the behavior of inflation in the coming months. A deficit in inflation could stimulate the Fed to slow down its campaign, but inflation close to or above the Fed's 2% target could encourage officials to continue in an environment of very low unemployment.
It is also unclear how the Federal Reserve will respond once it reaches a neutral rate adjustment of around 3% or a little higher. In general, the Fed has raised rates above the neutral in a fast growing economy to avoid overheating. If inflation and asset prices are modest, the Fed could stop almost neutrally.
Write to Vivian Salama in vivian.salama@wsj.com and Nick Timiraos in nick.timiraos@wsj.com
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