Fed is ‘only problem’ our economy has: Trump

Wall St closely following reports about the possibility of firing Powell

WASHINGTON, Dec 24, (AP): President Donald Trump lashed out at the Federal Reserve on Monday after administration officials spent the weekend trying to assure the public and financial markets that Jerome Powell’s job as Fed chairman was safe.

“The only problem our economy has is the Fed,” the president tweeted Monday. “They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch – he can’t putt!”

On Wall Street, stocks had already been down but intensified their fall after Trump’s tweet. Markets were already facing their worst month in a decade over fears about a US trade war with China, a slowing global economy and chaos in the Trump White House. Near the close of a holiday-shortened trading session Monday, the Dow Jones Industrial Average was off more than 500 points.

Trump’s latest tweet attacking the Fed was met with concern that any attempt to diminish Powell or remove him as chairman could destabilize the economy.

“He is seeking open warfare on Christmas Eve,” said Peter ContiBrown, a financial historian at the Wharton School of the University of Pennsylvania. “We’ve never seen anything like this full-blown and full-frontal assault. This is a disaster for the Fed, a disaster for the president and a disaster for the economy.”

The president has expressed frustration over the Fed’s decision to raise its key short-term rate four times this year. Those moves are intended to prevent the economy from overheating at a time of brisk growth and an unemployment rate near a half-century low.

At a news conference last week, Powell explained that the rate hikes were evidence of the economy’s strength. But Trump sees the increases – which lead to higher borrowing costs for consumers and businesses – as an economic and political threat.

Trump’s attacks are widely seen as an intrusion on the political independence of the Fed, which exists to determine the flow of money based off economic data on employment and inflation.

Fed independence has long been among the bedrocks of the US financial markets. It ensures that central bankers can make politically unpopular decisions, such as fighting high inflation in the 1980s or rescuing banks after the 2008 financial crisis.

Sen Richard Shelby of Alabama, a senior Republican on the Banking Committee, has cautioned against removing Powell.

“I’d be very careful doing that,” Shelby told reporters Saturday at the Capitol. “The Federal Reserve is set up to be independent.”

Stocks did decline after Powell announced this year’s fourth rate hike on Wednesday. But the selloff appeared to reflect concerns that the Fed was moving too fast in its plans to raise rates and shrink its vast portfolio of bonds given an economic slowdown that is expected in 2019.

Fed officials voted unanimously to increase rates last week. Among those voting with Powell were three other board members who were chosen by Trump: Richard Clarida, Randal Quarles and Michelle Bowman.

The president expressed his displeasure Monday with the Fed after Treasury Secretary Steve Mnuchin had tweeted on Saturday that Powell’s job was safe.

Mnuchin also tweeted on Sunday that he had checked with the heads of the six largest US banks to ensure that they had enough liquidity to operate in a stock market that has tumbled sharply since October.

“My sense is the Mnuchin tweets don’t tell us much about the economy,

Federal Reserve Chairman Jerome Powell speaking at a news conference

in Washington. (AP)

but they provide unusual insight into the chaos inside the White House,” said Joseph Brusuelas, chief economist at the consultancy RSM. “Rather than instilling confidence, it created confusion and raised more questions than it answered. Foremost among those is, how safe is the job of Jay Powell as chairman of the Federal Reserve?”

All the 11 major S&P 500 sectors were lower, and all the 30 components of the Dow Industrials were in the red, pushing them closer to bear territory. However, trading volumes are expected to be muted, with markets closing at 1 pm ET (1800 GMT) ahead of the Christmas holiday, and could exaggerate movements.

A statement by Mnuchin on Sunday about his conversation with the banks and plans to convene the so-called Plunge Protection Team “was not especially comforting, however, given that investors had not generally been questioning market functioning in recent days, despite large declines,” Nick Bennenbroek, currency strategist at Wells Fargo in New York, wrote in a note to clients.

Wall Street is also closely following reports that Trump has privately discussed the possibility of firing Federal Reserve Chairman Jerome Powell. Mnuchin said on Saturday that Trump told him he had “never suggested firing” Powell.

The meeting of the working group also comes amid a partial government shutdown that began on Saturday following an impasse in Congress over Trump’s demand for more funds for a wall on the border with Mexico.

The Plunge Protection Team, which was also convened in 2009 during the latter stage of the financial crisis, includes officials from the Federal Reserve as well as the Securities and Exchange Commission.