Central Bankers Defend Fed After Trump Accuses It of ‘Going Loco’

US President Donald Trump

It's the latest sign that markets may be struggling to adjust to a new era, where returns are no longer juiced by the ultra-low rates that prevailed in the years following the Great Recession.

Even chief Trump economic adviser Larry Kudlow, qualifying the president's opinion of Fed chair Jerome Powell's Fed, said he thought the central bank was "on target", and that its ability to raise rates was a sign of "economic health, that is something to be welcomed and not feared".

By pitting himself against the Fed, Trump is raising the stakes of a monetary-policy error.

Donald Trump's use of the word correction to describe the sell-off could be significant.

The U.S. Federal Reserve is plum loco.

The President said the markets were way up over what they were.

Carney also praised Fed Chairman Jerome Powell's technocratic expertise.

Despite a booming United States economy, low inflation and low unemployment, investors are concerned about rising bond yields that have been drawing money out of the stock market, and increased USA interest rates.

But some investors and analysts expressed concern about the market's direction.

The breach of norms is not surprising for a real-estate-developer and reality-star-turned-president who has cheered as Wall Street has soared to new heights this year, hitting repeated records, and used that as proof his economic policies were working.

The Fed raised interest rates last month, and is expected to do so again in December. "The problem I have is with the Fed", he said. "They're raising interest rates and it's ridiculous".

The Federal Reserve has repeatedly pledged to raise rates only gradually.

That would require the Fed not to be neutral but more restrictive, he added.

"The US equity bloodbath is taking no prisoners in Asia as a sea of red greets investors at the open, as equity deleveraging and liquidation intensifies", he said.

Powell has "reset market expectations " Parts of the economy and the stock market that are sensitive to higher interest rates are also useful gauges for the impact of Fed policy.

The IMF projections don't take into account Trump's threat to expand the tariffs to effectively all of the more than $500 billion in goods the US bought from China past year.

It is not the Fed's job to support the stock market. The Fed was plowing ahead with rate increases, while investors were evidently skeptical that growth would be persistent enough to justify higher long-term rates. Also, inflation has remained near the Fed's 2% objective.

"From my perspective, the most important thing we can do now is get ourselves well positioned for whatever may come", Mr. Williams said.

However, some investors - and now Trump - are anxious that the Fed is unmoved by the red flags popping up in financial markets and some corners of the economy.

Mnuchin, speaking to reporters on the sidelines of the International Monetary Fund and World Bank annual meetings in Bali, also said that Chinese officials had told him that they did not want to see a further depreciation of the yuan's exchange rate, an issue that the U.S. has been very concerned about.

"What is happening now is that for every major economic release, investors are looking for data, whether it confirms what Powell said or contrasts what Powell has said", Arone told Business Insider.

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