Trump says Fed 'out of control' but won't fire Powell

Trader Peter Tuchman works on the floor of the New York Stock Exchange Wednesday Oct. 10 2018. The Dow Jones Industrial Average plunged more than 800 points its worst drop in eight months led by sharp declines in technology stocks. (AP

Trump says Fed 'out of control' but won't fire Powell

President Donald Trump has intensified his attack on the US Federal Reserve following this week's plunge in stock prices, saying the central bank is "out of control" in raising interest rates, but ruled out firing its head Jerome Powell.

"When you talk about economies, our economy is far better than that".

Higher interest rates likewise make bonds more attractive than riskier equities, and the 10-year Treasury bond yield has jumped above three percent this week. If the economy maintains its current pace through the fourth quarter, the resulting 3.8 percent growth would be remarkable at this stage in an expansion but the economy is not overheating or in any danger of doing so.

During a PBS interview last week, Fed Chair Jerome Powell said accommodative interest rates, or low rates to encourage economic growth, were no longer needed. It has shed 1,378 points over the past two days. "If America has a problem, everyone has a problem", Rogers said.

The yields of inflation-protected bonds have moved mostly in lock step with traditional bonds in recent weeks, suggesting that traders haven't become more anxious about inflation.

So now, I'd like to see if we can collectively step back a bit, take several deep breaths and do some thinking.

Trump has been a persistent critic of the Fed's interest rate policy. Kaplan is a voting member this year of the Fed's rate-setting committee. Now the Fed's own projections are consistent with the path of rate increases priced into markets.

The Fed has said strong economic performance in the United States means that the ultra-low rates put in place to spur economic activity after the 2008 financial crisis are no longer necessary.

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Moreover, Roberto Perli of Cornerstone Macro calculates that a big part of the higher rates is an increase in the "term premium". Investors would withdraw money from the Indian markets as the U.S. ones would offer better rate of return.

The benchmark Nikkei 225, the Hang Seng in Hong Kong and the Shanghai Composite all plummeted more than 3% in early morning trade, as investors fretted about surging interest rates and an ongoing trade war.

Larry Benedict, founder of the Opportunistic Trader, said that even while some of the largest names in tech - including Netflix, Amazon, Google and Facebook - saw some of the steepest dips, they are all up significantly for the year. "The trend is clearly up, and the market is betting that will continue". He was persuaded by Treasury Secretary Steven Mnuchin that Powell, who was already a Fed governor, would be a force for stability.

Of course, there are downsides to the higher rates. He frequently celebrates publicly when the stock market reaches new highs, pointing to the gains as affirmation for his economic policies.

Does the market fear the Fed will respond to inflationary signals with more hikes than previously expected, maybe enough to hurt corporate profits, or dim the US economy into recession?

A market-based gauge of the annual US inflation rate for the next decade - the 10-year breakeven rate - declined this week to 2.13 percent from close to a four-month high of 2.17 percent reached last week.

Naeem Aslam, chief market analyst at Think Markets, said: "We have not experienced anything like this since Brexit and if you look at the Nasdaq, it becomes clear that the sell-off was actually triggered by the technology stock". Lower demand then puts a damper on prices.

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