Published: Fri, October 12, 2018
Money | By Armando Alvarado

Trump takes aim at 'crazy' Fed as markets sink following US slump

Trump takes aim at 'crazy' Fed as markets sink following US slump

On Thursday, the USA core consumer price index for September came in at 2.2 per cent. Even at the projected 3.25 percent in the Funds at the end of 2019, the potential reduction is well below the peaks of 550 and 525 basis points at the beginning of the last two rate reduction cycles.

The S&P 500 closed down 2.1 per cent after its sixth losing session in a row.

The broad selloff took the S&P 500 to the lowest in three months, the Dow Jones Industrial Average plunged as much as 836 points and the Nasdaq 100 Index tumbled more than 4 percent for its worst day in seven years.

They include the United States trade war with China and its potential impact on global growth, while rising bond yields have diverted attention from equities - stocks - which have been offering the most attractive returns for years because central bank stimulus had flooded markets with cheap money.

The dollar is stronger against the shekel, but generally weaker on world forex markets, following outspokenly critical comments by US President Donald Trump on the series of interest rate hikes being implemented by the US Federal Reserve.

"I think the Fed is making a mistake", Trump told reporters as he arrived for a campaign rally ahead of the USA midterm elections. "I think the Fed is out of control".

"The Fed is going wild", Trump told Fox News on Wednesday night. Trump instead has placed blame squarely with the Fed.

But as the economy began to post solid and consistent growth following the global financial crisis of 2008, and prices began to creep higher, the central bank was anxious to return to a more normal policy.

At IMF meetings in Bali, Lagarde said she "would not associate" Fed chair Jerome Powell "with craziness".

On Thursday, President Trump renewed his criticism of the Federal Reserve, blaming the recent downturn in the stock market on the Fed's rate policy.

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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.

"The Fed's more-restrictive stance has joined with other signals to unsettle investors even as major USA indexes rose to new highs", the financial daily said.

"We know the Fed is independent". Republican critics tend to want the Fed to raise rates more quickly, not more slowly.

Trump has repeatedly touted Wall Street records as proof of the success of his economic program, including his confrontational trade strategy.

In fact it is largely his policies that are behind the changes: tax cuts and increased government spending are expected to juice the economy, adding to the Fed's justification to raise interest rates. But the remarks are a sharp departure from Trump's recent predecessors.

Kevin Hassett, the head of Trump's Council of Economic Advisers, said the president is expressing his views on monetary policy, but he isn't trying to "politicize" the Fed.

In the face of the repeated attacks, Mr Powell said central bankers did not pay attention and are "quite removed from the political process". "But I think the Fed has gone insane", he said.

'And we just try to do the right thing for the medium and longer term for the country'.

International Monetary Fund chief Christine Lagarde also defended the Fed on Thursday.

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 percent in September, is at a level that many officials expect will cause wage and price gains to accelerate over time.

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