US economy strong, stock drop a ‘natural correction’: Mnuchin
‘Trump respects the independence of Fed’
WASHINGTON, Oct 13, (AFP): US Treasury Secretary Steven Mnuchin said Friday the US economy remained strong and this week’s decline in the stock market was “just a natural correction.”
After two days of sharp drops in US and global stock markets over fears of rising interest rates and the US trade conflicts, Mnuchin said in an interview on CNBC that markets tended to go “too far in both directions” and then would have to correct.
But he said it was a “good thing” that Wall Street was poised to recover on Friday. He was speaking on the sidelines of the International Monetary Fund annual meeting in Bali, Indonesia.
After an unusually volatile day in which stocks dipped in and out of the red, Wall Street’s main indices closed up solidly for the day but, with earlier losses, were all still down about four percent for the week.
Investors also were watching the start of corporate earnings season, with major banks posting positive quarterly results on Friday morning.
Analysts said third-quarter earnings could reveal the extent to which US President Donald Trump’s trade conflicts might have dented profits.
Mnuchin also downplayed concerns about Trump’s repeated and aggressive attacks on the US Federal Reserve this week, saying Trump “respects the independence of the Fed.”
Trump has by turns called the Fed “crazy” and “loco” and said it was being “too aggressive in raising rates,” blaming the institution for the market declines that saw the benchmark Dow Jones Industrial Average lose nearly 1,400 points in two days.
“The president’s been clear. He likes low interest rates. I think that’s really what it was about,” Mnuchin said, adding that Fed chairman Jerome Powell was “doing a great job.”
“I think the fundamentals are still very strong. The US economy is strong, US earnings are strong. So I see this as just a natural correction after the markets were up a lot.”
Taunts
Powell in the past has brushed off Trump’s taunts, saying political independence was in central bankers’ “DNA.” Despite Trump’s attacks on the central bank, economists say that, with unemployment at its lowest level in 48 years and monthly job creation holding steady, the Fed is likely to stick to its current course of rate hikes, with a fourth increase expected in December, and three or four in 2019.
Some Fed policymakers who in January will take a turn as voting members of the rate-setting Federal Open Market Committee have begun to send more hawkish signals, putting them increasingly at odds with Trump.
Mnuchin said Friday he had told the head of China’s central bank about his concerns over the weakness of China’s currency. Mnuchin said he had had “a constructive discussion about the currency” with People’s Bank of China Governor Yi Gang in Bali, Indonesia where they are attending the annual meetings of the International Monetary Fund and World Bank.
“I am concerned about the weakness in the currency. I’ve reflected that to them,” Mnuchin said in a TV interview on CNBC. Chinese officials “made it clear it’s not in their interest to see depreciation further.”
He said he also discussed the ongoing trade dispute with Yi and confirmed there were discussions about a potential meeting between President Donald Trump and Chinese President Xi Jinping during the Group of 20 summit in Buenos Aires in November.
But the meeting would only happen if there is enough progress in the trade discussions, he said. “There is no deadline.”
“We’ve been very clear with China that we need to have structural changes, that we need a reciprocal trading relationship and we should be able to increase our exports by hundreds of billions of dollars,” he said.