Trump Says Fed Moving Too Fast With Interest-Rate Increases

Chart Source Board of Governors of the Federal Reserve System

Over the past three years, the Fed has raised rates eight times.

Treasury Secretary Steve Mnuchin said on Friday that U.S. President Donald Trump does not feel he needs to attack the Federal Reserve and respects its independence. As I wrote this on Thursday, the market was down another $200 billion, by my estimate.

And you don't see that inflation coming back. "We don't let other things distract us".

President Donald Trump tried to explain why the Dow Jones had a awful dip on Wednesday, and blamed the Federal Reserve Bank. I wandered through the neighborhood in which I live, enjoying the weather and treating myself to an iced coffee rather than staying home to watch CNBC, be enslaved by my computer and twitch. As opposed to reacting.

World stock markets have taken a dive as Trump's attacks on "crazy" USA rate hikes add to borrowing cost concerns.

Tokyo, Hong Kong and Shanghai all plummeted around four per cent in morning trade, as investors fretted about surging interest rates and the ongoing US-China trade war. That maneuver consisted of the Fed buying vast amounts of securities with money it created out of thin air.

As interest rates rise, investors have been getting out of bonds, driving down their price and driving up their yields. If a 4 percent long-term bond is issued at 100 percent of face value, it's yielding 4 percent. In Japan, 10-year bonds are not even paying 15 basis points.

US Treasury bonds are considered among the closest approximations to a "safe" investment in the financial system, which makes them a benchmark for most other investments.

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The cost to borrow money is on the rise.

Why are interest rates rising?

The Fed has less control over longer-term interest rates, which move mostly on expectations for future economic growth and inflation. But that's not right. "Today, the so-called forward-looking federal funds rate is identical to the backward-looking core-inflation rate". Since the rate hikes began in late-2015, the S&P 500 has gained about 40%, suggesting this might well be another brief volatility episode. "I think the Fed has gone insane", the president said after walking off Air Force One in Erie, Pennsylvania for a rally.

Why? Because higher short rates imply lower inflation. One is that higher rates make it more expensive to borrow, which can tap the brakes on economic growth.

This makes Trump's statements about the Fed on Wednesday totally absurd.

"The Fed is making a mistake", Trump told reporters as he arrived for a rally in Erie, Pennsylvania.

"I'd rather pay down debt or do other things, create more jobs, so I'm anxious about the fact that they seem to like raising interest rates. I think I know about it", he said. The Fed is in business to do what it thinks is right, not necessarily what the people in power want it to do. He also mentioned the Fed is monitoring other risks - "the strength of economies overseas, the effects of ongoing trade disputes, and financial stability issues" - all of which, if they prove real, would suggest less tightening rather than more as a monetary policy response. And our country and our economy will be better off than they would otherwise be. Cold brew with cream, anyone?

And now, given how the market is lurching around, it may be time for another sanity stroll to my local coffee shop.

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