Published: Fri, October 12, 2018
Business | By Eloise Houston

Donald Trump says Fed has 'gone crazy' after Dow Industrial Average tumbles

Donald Trump says Fed has 'gone crazy' after Dow Industrial Average tumbles

That is bad news for homebuyers and other prospective borrowers.

On Thursday, President Trump renewed his criticism of the Federal Reserve, blaming the recent downturn in the stock market on the Fed's rate policy.

That has so far been strong enough to warrant steady rate hikes, a sign from the Fed's perspective of an economy that has recovered more completely from the 2007 to 2009 financial crisis.

Naeem Aslam, chief market analyst at Think Markets, said: "We have not experienced anything like this since Brexit and if you look at the Nasdaq, it becomes clear that the sell-off was actually triggered by the technology stock".

US interest rates have been on a steady march higher for two years.

But beyond those headline numbers, the details of how the prices of different types of securities have moved relative to one another tell a story that is decidedly optimistic. "I mean I don't know what their problem is but they are raising interest rates and it's ridiculous", Trump said late Wednesday night. "I think our nominees have been absolutely first rate".

As Hurricane Michael pummeled Florida, Wall Street was battered by storms as well, with the Dow shedding about 830 points, in the biggest fall since February, to close the day at 25,498.74.

"All over the world, it is certainly a good principle to have independence of the central banks and of the central bank governors". "It's reflecting the possibility that this recovery has further legs". Low interest rates fueled a housing boom until 2005, when the agency began a policy of rate increases to temper growth in an overheated economy.

The yields of inflation-protected bonds have moved mostly in lock step with traditional bonds in recent weeks, suggesting that traders haven't become more anxious about inflation. The price of gold jumped 2.9 percent to $1,227.60 an ounce.

The president has been publicly criticizing the central bank since July for interest-rate increases and declared he was "not happy" in September after the third rate hike of the year.

Higher interest rates tend to moderate economic growth and makes borrowing more expensive for the USA government as well as businesses and consumers.

In previous years, financial markets have been doubtful that the Fed would follow through with its forecasts for rate increases. The Fed aims to raise rates to about 3 percent. "I'd like our Fed to not be so aggressive because I think they're making a mistake".

Rates a big part of selloff. "And we have interest rates going up at a clip that's much faster than certainly a lot of people, including myself, would have anticipated", the United States president said.

The president said the markets were way up over what they were. "The trend is clearly up, and the market is betting that will continue".

In Europe this week, the closely-watched spread between the rates on 10-year bonds in Italy compared with those offered by Germany, which is a measure of the added risk perceived by investors to holding onto Italian debt, hit the highest level since April 2013.

Of course, there are downsides to the higher rates. Does not want to take the blame if the market goes down.

And the housing sector is especially sensitive to the longer-term interest rates set on the bond market, which in turn determine mortgage rates. Instead, U.S. equity markets have kept going up.

"He is an individual that really understands the plumbing of the US and global financial systems and one example is the reforms that are going underway on Libor for which he is one of the main sponsors", said Carney.

Other data have also been stoking inflation expectations - higher energy prices, the September Producers Price Index (up 0.2 per cent), the 4.2-per-cent Q2 GDP growth reported at the end of September.

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