After Stock Market Drop, President Trump Says Federal Reserve ‘Has Gone Crazy’

Eileen GuzmanOct 12, 2018

After President Donald Trump warned that the Federal Reserve is "going loco" and "making a big mistake", his chief economic adviser Larry Kudlow stepped in front of reporters at the White House and insisted the President wasn't "calling out the Fed". "I think the Fed has gone insane", the president said after walking off Air Force One in Erie, Pennsylvania for a rally. But he downplayed the first major drop in months, saying it was a "correction that we've been waiting for".

He has frequently criticized the USA central bank for gradually raising interest rates, and on Wednesday reiterated his position: "I really disagree with what the Fed is doing".

The Federal Reserve has steadily tightened monetary policy amid an economic boom in the United States, something Trump has repeatedly criticized.

She said in addition to rising interest rates, investors also fear that company profit margins will be squeezed by rising costs, including the price of oil. The Fed is an independent body and presidents in recent decades have avoided commenting publicly on its actions.

One former Treasury official said while Trump's comments are unusual, they don't appear to be changing the Fed's direction.

Trump has slapped tariffs on $250 billion in Chinese goods this year, and Beijing has retaliated with levies $110 billion of American products. No, that wasn't it. "But I really disagree with what the Fed is doing".

The fall in US stocks on Wednesday triggered a global sell-off as investors fretted repeated rounds of interest rate hikes and the ongoing US-China trade war.

He added later, "The problem, in my opinion, is Treasury's and the Fed". "But I think the fed has gone insane".

Trump said the market plunge is "a correction that I think is caused by the Federal Reserve".

Add it all up, and it means the world's most savvy investors are betting that the US economy will keep growing at a healthy clip, without inflation emerging, but that the Fed will have to keep raising rates well above current levels in order to prevent that inflation.

According to the Wall Street Journal, the Dow industrials extended their steepest October retreat since the financial crisis, posting an 832-point decline that raises fresh concern about the health of the nine-year-old bull market for stocks. The S&P 500, the market benchmark, closed over 2% lower on Thursday, its sixth straight daily decline.

Part of the recent rout in U.S. stocks has been down to sharp falls in the so-called Faang companies - Facebook, Apple, Amazon, Netflix and Google.

The S&P 500 fell the most since February and the Nasdaq 100 had its worst day in seven years on Wednesday, paring gains for the year and promising little respite for equity investors Thursday.

The rise in longer-term interest rates is driven mainly not by a rise in inflation expectations, but rather by a rise in investors' expectations for what the Fed will do and for how much compensation bond investors are demanding in lending over long time horizons.

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