Published: Sat, October 13, 2018
Money | By Ralph Mccoy

Mnuchin Says Trump Respects the Independence of the Fed

Mnuchin Says Trump Respects the Independence of the Fed

Wall Street stocks plummeted Wednesday amid worries about surging United States interest rates and the impact of trade disputes, as President Donald Trump blamed the Federal Reserve, saying it had "gone insane".

"I don't think there is any doubt that interest rates" at current levels are adding stimulus to the economy, said Mark Spindel, co-author of a 2017 book on the central bank. "It's so tight. I think the Fed has gone insane", Trump told reporters as he arrived for a campaign rally ahead of the USA mid-term elections. Rogers says that Trump is wrong about his attitude to the Fed's policy. To President Donald Trump's chagrin, the Fed raised rates on September 26 for the third time this year and the seventh time since Trump was elected, and is hinting at further rate hikes. The Fed is an independent body and presidents in recent decades have avoided commenting publicly on its actions.

The Fed under his hand-picked chairman Powell has been gradually raising rates as the economy has strengthened to prevent a run-up in inflation. I don't know what their problem is.

"But I think the Fed has gone insane", he said.

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

Trump, who departed for Erie just before markets closed on Wednesday, was briefed by officials about the sell-off.

White House Press Secretary Sarah Huckabee Sanders said in a statement following the close of markets that the USA economy is "incredibly strong" despite the sell-off.

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

The yield on 10-year U.S. Treasury bonds reached a seven-year high this week of 3.25 percent (it receded some Wednesday as stocks dropped), up from 2.82 percent in August. Fail to act promptly and it risks inflation becoming a self-fulfilling prophecy. Are interest rates too high? Trump is concerned that the Fed will raise interest rates too fast and hurt growth, a legitimate issue, he explained.

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The average rate for a 30-year fixed-rate mortgage rose to 4.7 percent last week, from below 4 percent at the end of 2017, according to data from Freddie Mac.

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. And higher rates down the road would make stocks look even more like bonds' ugly brother. In other words, the steady rise in the Fed's policy rate, and estimates for future hikes, haven't translated into harsh financing conditions for the overall economy yet.

Both Powell and the president confirmed in recent days that they have not spoken to each other about interest rates.

Trump named Powell to lead the central bank but can only fire him for cause.

During an event earlier Wednesday amid the sell-off, Trump and his top economic adviser, Larry Kudlow, said they believed the US economy was strong. He was persuaded by Treasury Secretary Steven Mnuchin that Powell, who was already a Fed governor, would be a force for stability.

International Monetary Fund (IMF) managing director Christine Lagarde.

The right thing includes doing "whatever it takes" to keep inflation from accelerating, he said.

Another problem with heightened inflation expectations is that real inflation hasn't shown much life. Economic experts are split on how long the strong economy will continue, and some investors are convinced that a number of stocks - particularly technology companies - are overpriced and were due for a slide.

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