Trump blames Fed for stock rout, says central bank ‘ridiculous’

Stock markets

Fear that the U.S. Federal Reserve will pump the breaks on robust U.S. economic growth with more rate hikes is a good place to start, according to Oliver Jones, a markets economist at Capital Economics.

The Fed last raised interest rates in September and left intact its plans to steadily tighten monetary policy, as it forecast that the United States economy would enjoy at least three more years of economic growth.

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

While acknowledging that higher rates helped savers, he criticised the Federal Reserve's moves.

"I think. the Fed is making a mistake".

The broad USA stock market sell-off Wednesday took the S&P 500 to the lowest in three months, the Dow Jones Industrial Average plunged as much as 836 points and the Nasdaq 100 Index tumbled more than 4 percent for its worst day in seven years.

The rout caused a domino effect worldwide, with losses spreading to Asia and Europe as investors remained concerned about rising rates - which would send more buyers out of equities and into bonds - as well as the impact of Trump's trade conflict with China on corporate profits.

"It's a correction that we've been waiting for for a long time", he said of the more than 800-point drop.

Kevin Hassett, the head of Trump's Council of Economic Advisers, said the president is expressing his views on monetary policy, but he isn't trying to "politicize" the Fed.

Most economists consider a reputation for independence essential for maintaining a central bank's credibility with investors that it will guard against inflation. "He didn't say anything remotely like that", he said on CNBC.

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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.

Trump has often pointed to stock market records set during his time in office as a measure of his success.

Even so, the market tumble may capture the tone of the Bali talks, where policy makers are increasingly focused on the risks to global growth amid escalating trade tensions and the Fed's embrace of higher interest rates.

The attacks on the Fed are another example of Trump breaking with recent norms.

The Fed traditionally remains outside the purview of the President, though Trump has at moments blurred the lines by commenting on Fed policy.

Powell has brushed off the comments, saying officials do not pay attention to politics.

Trump has departed from that practice and has said he would not shy from future criticism should the Fed keep lifting rates.

"And we just try to do the right thing for the medium and longer term for the country".

IMF Managing Director Christine Lagarde also cautioned against reading too much into the sell-off. This implies they now see a greater possibility that growth and short-term interest rates could surprise by rising faster than forecasters now project.

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