Trump says Fed is 'going loco' with rate hikes

11 October 2018

(Sharecast News) - US President Donald Trump has again expressed unhappiness with the Federal Reserve's tightening of monetary policy which has bolstered the dollar and put pressure on Wall Street stocks.
After years of ultra-loose policy in the wake of the financial crisis, the US central bank has been reacting to the strength of the country's economy and raised interest rates three times this year.

Trump complained that the Fed's lifting of rates caused the 800-point plunge in the Dow Jones index overnight, the largest loss since February. The three major US stock market indices dropped more 3% apiece.

Trump told <em>Fox News</em> he could not understand why the Fed continued to tighten US monetary policy.

"The problem I have is with the Fed. The Fed is going wild. I mean, I don't know what their problem is that they are raising interest rates and it's ridiculous. The problem [causing the market drop] in my opinion is Treasury and the Fed. The Fed is going loco and there's no reason for them to do it. I'm not happy about it," he said.

Although these attacks against the Fed cause experts to be wary of the President's commitment to keep the White House and the Fed separate, Trump told reporters on Tuesday he understood the importance of the firewall between the two and said he had not spoken to Fed Chairman Jerome Powell about the rate hikes.

Pointing to the "remarkably positive set of economic circumstances" revealed in recent US data, Powell said last week: "Interest rates are still accommodative, but we're gradually moving to a place where they'll be neutral. We may go past neutral. But we're a long way from neutral at this point, probably."

Three more hikes are expected before the end of 2019, based on Fed fund futures.

These were, said analyst Neil Wilson at Markets.com, "typical off-the-cuff remarks from a real estate guy who likes low rates Doesn't everyone in equity markets?"

Wilson said he thinks this will not put the Fed off from hiking rates unless the equity market crumbles further and starts to really hit consumer confidence and real earnings growth.

"The far larger selloff in Feb in US equity markets did nothing to dissuade the Fed from its hiking path and there is no reason why this smaller (at present) selloff will produce a reaction," he said.

"US fundamentals still look very strong and the rising yield story is down to strong growth, although we do see some sizeable risks that the curve flattens from here. There is a lot of similarity with the Feb selloff - market jitters over rates and inflation spooking investors. Then they came back in slowly but ultimately bid up the market to new all-time highs. However a series of selloffs can have a cumulative effect on market psychology and that is a risk factor for bulls longer term."

Asia and European stock markets responded to the US market moves by falling on Thursday with the Shanghai Composite closing at its lowest level for four years and Japan's Nikkei and the Hang Seng down 4%.

The FTSE 100 opened 1.5% lower, just above the 7000 point level after a 1.3% decline on Wednesday, while the Euro Stoxx 600 benchmark was down 1.8%.