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Trump urges Fed not to raise USA interest rates too fast

14 October 2018

As the selling gathered momentum, panic took hold which eventually saw the Dow Jones Industrial Average shed more than 1,000 points from its high.

In Asia stock markets braced themselves for another day of losses. Even Amazon (AMZN) dropped 6%.

Trump has repeatedly touted Wall Street records as proof of the success of his economic program. The recent stock market volatility has been fueled in part by the realization that higher rates will mean higher borrowing costs for corporations.

Add it all up, and it means the world's most savvy investors are betting that the USA economy will keep growing at a healthy clip, without inflation emerging, but that the Fed will have to keep raising rates well above current levels in order to prevent that inflation. He blamed the central bank, and not his trade wars, for the bloodbath.

Us stock market on Thursday began with the fall. Investors are anxious that their investments will be less profitable over time if inflation picks up. So even in Italy, which is in the midst of a budget crisis, the 10-year bond yield is just above 3.5 per cent - not much of a risk premium over Treasuries there. That's an about-face from 2.85% at the end of August. Indeed depressed long-term rates had led some Fed officials to worry that short-term rates might rise above them and cause the sort of bond yield "inversion" that precedes recession. Suddenly, stocks are getting competition from boring bonds. The investor is predicting a "very bad" bear market ahead. Facebook (FB), Netflix (NFLX) and Twitter (TWTR) all fell sharply on Wednesday. Long-time trader Art Cashin said the market sell-off is partially seasonal, and partially a case of weakness driving further weakness.

However, he acknowledged higher rates helped savers. Inflation is still relatively tame but may be showing more signs of life.

Similarly, every time the Fed raises rates, the cost of interest on our debt and the cost of running the US government goes up dramatically thus reducing available money to spend on infrastructure and salaries of government employees.

You would expect that damping down economic growth would draw a negative reaction from USA markets because it signals an impending economic contraction.

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In other words, Trump's death-defying trade-policy stunts are being executed without a safety net.

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

"I don't think any decision has been made with regard to a meeting", Mnuchin said when asked if the Chinese side had offered enough trade concessions to justify a meeting. "I think the Fed is out of control". "If the economy slows we can adjust to that".

He has frequently criticised the USA central bank for gradually raising interest rates.

All of that is great news for Americans. Third-quarter S&P 500 earnings are projected to soar by 20%.

Mr. Williams nodded toward some of the worldwide concerns about the spillover effects of Fed rate rises by noting that the central bank has a domestic mandate, while adding it does very much take on board how its policies affect other nations.

The major difference is that corporate profits are expected to decelerate next year as the impact of the tax cuts fades. "It's all about investors rethinking their exposure to stocks".

The tit-for-tat tariffs threaten to hurt business confidence and delay investment. The recent drop in equity prices has been due to a number of factors that had been building up in recent weeks, not least concerns over trade between the two largest economies in the world - the U.S. and China - and its potential impact on global growth.

Trump urges Fed not to raise USA interest rates too fast