Published: Sun, October 14, 2018
Markets | By Noel Gibbs

Trump Must Stop Fed From Fueling Inflation

Trump Must Stop Fed From Fueling Inflation

Powell, who took the Fed's top job in February, has presided over a series of interest rate hikes which have attracted Trump's criticism. "I think the Fed has gone insane", the president said after walking off Air Force One in Erie, Pennsylvania for a rally. "But I think it's far too stringent far too fast". "Actually, it's a correction that we've been waiting for for a long time".

The Dow Jones Industrial Average sank 831 points Wednesday, an approximately 3.15 percent drop.

But Trump now sees the Fed's gradual return of rates to normal levels as disrupting the stock market and an economic boom he argues would otherwise endure for many years.

The Republican president told the presenters: "They're [Fed bankers are] making a big mistake". But the larger question than how the Fed actions are affecting Trump politically is should this private monopoly have this kind of power over interest rates in the first place? Trump owes more than $300 million to Deutsche Bank AG of debt with interest rates that rise or fall depending on Fed policy. In other words, the only time Trump or any other president can realistically remove a Fed chairman is at the end of the chairman's term of office.

On Wednesday, Trump said, "The Fed is going wild".

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"The US equity bloodbath is taking no prisoners in Asia as a sea of red greets investors at the open, as equity deleveraging and liquidation intensifies", he said.

The benchmark Nikkei 225 dropped almost two percent at the open and extended losses to below the three-percent mark, as traders fretted about surging interest rates and an ongoing trade spat.

Fed Chairman Jerome Powell is aiming to extend the second-longest USA economic expansion on record by moving interest rates up just quickly enough to prevent overheating, but not so rapidly that the central bank chokes off growth.

"That's not the problem", he said in a telephone interview with Fox News late Wednesday of the trade standoff.

Stocks have been under pressure since the yield on 10-year US Treasury bonds jumped above three percent last week, a sudden move that raised fears of an overheating economy, speeding inflation and more aggressive Federal Reserve rate hikes.

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The Bank of England governor cited Powell's support for reform of Libor (London interbank offered rate), after a rate rigging scandal, as an example of the Fed chief's grasp of issues affecting world markets.

US central bankers have raised the benchmark lending rate three times this year, and investors see more than 70 percent probability of another hike in December.

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.

The broad-based S&P 500 also dropped 2.1 percent to 2,728.26, while the tech-rich Nasdaq Composite Index fell 1.2 percent to 7,330.26. "It is doing well", Trump said.

Powell's goal is to extend the second-longest US economic expansion on record by moving interest rates up just quickly enough to prevent overheating, but not so rapidly that the central bank chokes off growth. Trump this week has blamed the market's big sell-off on the Fed's interest rate increases, saying "the Fed is out of control".

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