US Politics: Trump triggers market slump as he labels Fed hikes "crazy"

Tradefair
11 October 2018

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World stock markets dive as President Trump criticises the latest action from the Federal Reserve.

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Global stock markets have suffered after President Trump dubs the latest Fed hikes "crazy". The Tradefair team brings you the latest from US politics...

"The problem I have is with the Fed. The Fed is going wild. I mean, I don't know what their problem is that they are raising interest rates and it's ridiculous."

- Donald Trump, US President.

Donald Trump hasn't feared the stock market in his time in the Oval Office. In fact, he's been quick to tie himself to it, taking credit for periods of strong performance. But the US President may find that linking his performance to that of the global markets may not always be the wisest idea.

Trump described interest rate hikes from the Federal Reserve as "crazy", which were met with heavy losses on Wall Street and led to extremely volatile markets. The Dow Jones tumbled by more than 800 points and the FTSE100 joined its European counterparts by stumbling into the red.

The news coming out of Brussels that a Brexit deal may be just around the corner appears to have done little to counteract Trump's comments, as the Footsie fell nearly 92 points. Tokyo's Nikkei index fell 4.25%, while Hong Kong and Shanghai also suffered similar losses.

Global stocks take a tumble

For many of the key indicators of global performance, it was a bad day in the office as the markets closed yesterday. The FTSE100 was forced into correction territory, as European shares hit a 20-month low and global markets overall recorded their poorest performance since February.

Fiona Cincotta, Analyst at City Index, told Proactive Investors that London's outlook should have been positive, with the Bank of England making moves to prepare lenders for a no-deal Brexit but this optimism wasn't enough to help equities.

"In the US the flight from stocks continues unabated as bond yields remain high but individual companies like Sears are also weighing on the indices," Cincotta added.

Of course, this isn't all down to everyone's favourite TV-personality-turned-President, though his criticism of the Fed certainly hasn't helped matters. There are a number of mitigating factors that Trump, despite his brash confidence, is unable to control.

What's causing the stock market unease?

The approaching earnings season always makes this a tricky time of year for investors, but there's no denying that 2018 poses a number of unique concerns for the markets. The upcoming midterm elections has undeniably caused additional uneasiness, as US-China trade tensions show no sign of improvement, despite NAFTA. Rising bond yields led to an inevitable sell off on Wall Street, while the ongoing feud between Italy and the EU has put investors on edge.

However, there are elements that the US President can take credit for. Paul Donovan of UBS Wealth Management said the Wall Street panic was down to Trump's decision to impose additional tariffs on China.

He said: "US equities seem to be (finally) reflecting the cost of US President Trump's trade taxes. Around 80% of global trade involves multinational (generally listed) companies. A bit less than half of S&P earnings come from outside the US.

"However, listed companies are only 25% of the US economy. Equities are at greater risk than the economy if trade is taxed aggressively."

Trump vs the Fed

Trump has complained for weeks about the Fed's decision to increase interest rates, as the US President deemed it to be too much too soon. In his criticism, he said the move threatened to stifle economic growth.

Although he was quick to credit himself for the strong performance of US stocks during his time in the Oval Office, the President played down the poor performance of Wall Street yesterday (October 10).

Speaking to reporters before a political rally in Pennsylvania, Trump called the move a "correction" that has been long awaited and again voiced his displeasure with the Federal Reserve's decision.

"I think the Fed has gone crazy," he added.

Has the Fed "gone wild"?

Explaining his feelings to Fox News, the US President said: "The problem I have is with the Fed. The Fed is going wild. I mean, I don't know what their problem is that they are raising interest rates and it's ridiculous."

"The problem [causing the market drop] in my opinion is Treasury and the Fed. The Fed is going loco and there's no reason for them to do it. I'm not happy about it," Trump added.

Investors have long been concerned about the ongoing tensions - and tit-for-tat charges imposed - between the US and China. However, the attack on the Federal Reserve is unlikely to calm any nerves.

The Fed has historically been able to carry out decisions independent of any political party or influence of the sitting President and this is something that the White House has been keen to reiterate in recent months. Trump himself has even recently claimed that he understands the importance of maintaining a divide between the Fed and Oval Office.

Many may see the brash criticism of interest rate hikes as an attempt from the President to influence the Fed's behaviour, but Trump has denied speaking to any officials about their actions.

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