Economy

Mnuchin says Trump respects the independence of the Fed

Mnuchin says Trump respects the independence of the Fed”

Now, it's in a scary tailspin.

Gundlach agreed that interest rates were partly responsible for the market sell-off.

The unemployment rate in September dipped to 3.7 percent, a level not seen in almost half a century, while an inflation report on Thursday indicated the pace of price increases remained under control around the Fed's target.

Fears about rapidly rising rates helped cause the Dow Jones Industrial Average to drop more than 800 points Wednesday. Among the hardest hit areas of the market were those that had earlier been the biggest winners, such as technology stocks. There are two Trump Fed picks with Wall Street experience, Randal Quarles, the vice chairman of supervision, and Powell.

Trump has said he likes low interest rates, in part because of his background in real estate.

The cost to borrow money is on the rise.

That trend is now reversing, albeit for mostly good reasons: The American economy is really strong, and the Fed is raising rates to keep inflation in check and make sure the economy doesn't overheat.

In July, the president complained about the Federal Reserve raising interest rates.

Trump has been a persistent critic of the Fed's interest rate policy. The central bank has even begun to shrink its $4.5 trillion balance sheet.

"Sentiment does remain fragile, having been initially a reaction to the sudden rise in United States bond yields, the selling has taken on a broader risk-off guise", warns Neil Wilson, chief markets analyst at Markets.com. Investors are anxious that their investments will be less profitable over time if inflation picks up.

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. That's an about-face from 2.85% at the end of August.

What do rising rates mean for stocks? Obviously, higher yields make Treasuries more attractive, but if higher yields increase demand, that will serve to cap yields. Facebook (FB), Netflix (NFLX) and Twitter (TWTR) all fell sharply on Wednesday. "I think our nominees have been absolutely first rate". Inflation is still relatively tame but may be showing more signs of life.

Fed chief Jerome Powell reinforced these worries last week by suggesting the Fed has a "long way" to go in its quest to return rates to normal levels.

Jeff Gundlach, the CEO of DoubleLine Capital, said Thursday that President Donald Trump was "being insane like a fox" for his rhetoric on the Federal Reserve.

In other words, it's full steam ahead for the Fed. On Thursday, he told Fox News the central bank "is going loco". But I think the Fed is far too stringent, and they're making a mistake and it's not right. "They're so tight. I think the Fed has gone insane", Mr. Trump told reporters after landing in Erie, Pa., for a political rally. "The U.S. economy is doing very well". If we need to raise rates more than expected we can do that in a reasonable way. Washington is borrowing heavily to pay for the corporate tax cut and a surge of government spending. He also mentioned the Fed is monitoring other risks - "the strength of economies overseas, the effects of ongoing trade disputes, and financial stability issues" - all of which, if they prove real, would suggest less tightening rather than more as a monetary policy response.

The tit-for-tat tariffs threaten to hurt business confidence and delay investment.



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