US President Donald Trump’s latest rant is directed at the ‘crazy’ decision of the US Federal Reserve to hike interest rates.
Even though the Fed’s chair Jerome Powell is one of his own nominees, Trump has slammed the rate setters as ‘out of control’.
The tantrum came as stock prices on Wall Street tumbled as the Fed hinted further rate rises may be on the way as soon as December.
The market wobbled on the news, sparking Trump’s comments.
“I think the Fed is making a mistake. They are so tight. I think the Fed has gone crazy,” said Trump.
Policy change unlikely
“Actually, it’s a correction that we’ve been waiting for a long time, but I really disagree with what the Fed is doing.”
But although the Fed chair is a political appointment, the central bank takes no heed of the President and is free to make decisions as the rate setting committee sees fit.
One financial expert argues the Fed has ploughed the same decision making furrow for more than two decades.
“Although stocks fell by about 3% in a day, which is by any standards quite dramatic, they bounced back pretty quickly,” he said.
December rate hike unlikely
“It is unclear whether this will throw the Fed off its broader trajectory of gradually raising rates. However, I would expect reduced expectations of a December rate hike coming from the market.
“In turn, that will ease the pressure on risk assets.
“Some on the right think the Fed shouldn’t respond to asset prices, but it does.
“This was the so-called Greenspan put of the late 1990s, whereby Alan Greenspan appeared to ease monetary policy whenever stock markets fell.
Room to manoeuvre
“It won’t be until December that we know if there is a “Powell put” that investors can look forward to, my guess is that there is.”
Green sees room to manoeuvre for the Fed.
“Powell can afford to support the stock market. After all, inflation is at modest levels, and higher borrowing rates and a strong dollar will be restraining its growth,” he said.
“Many investors will be using this situation to their advantage – they will be buying on the dips. The long-awaited bond market sell-off isn’t here, and risk free returns are not about to jump high and seriously challenge stock markets.
“The Fed has room to ease policy – slow rate hikes and/or reduce its quantitative tightening policy – any of which will be supportive of equities.
“A well-diversified portfolio and a good fund manager will help investors capitalize on the opportunities that volatility brings and sidestep potential risks.”