Tuesday, 18 December, 2018

How rising interest rates are shaking up the economy

The Federal Reserve is not pleasing President Trump with its policy on interest rate increases The Federal Reserve is not pleasing President Trump with its policy on interest rate increasesGETTY IMAGES
Kelvin Reese | 14 October, 2018, 03:05

"I think the Fed has gone insane", the president said after walking off Air Force One in Erie, Pennsylvania for a rally. Since the close of Wednesday's trading session on Wall Street he has called the Fed "crazy", "loco", "ridiculous", and "too cute", while saying its rate increases are "too aggressive", and "a big mistake".

"It's a correction that we've been waiting for for a long time", Trump said.

Trump, who has frequently invoked rising stock prices as an affirmation of his economic policies, downplayed the significance of the market drop even as he pointed the finger at the Fed. Of course, when interest rates go up, the cost of borrowing money goes up for both businesses and consumers, making more expensive purchases less likely, thus slowing down the economy, which has otherwise been booming during Trump's presidency. And the higher that "bond vigilantes" expect inflation to be, the higher the interest rate they will demand to offset erosion of the money they invest in long-term securities.

"The US tech bubble may take a while to burst and we are facing many external uncertainties - trade wars, risks in emerging markets currencies and oil price".

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.

At IMF meetings in Bali, Lagarde said she "would not associate" Fed chair Jerome Powell "with craziness".

Naeem Aslam, chief market analyst at Think Markets, said: "We have not experienced anything like this since Brexit and if you look at the Nasdaq, it becomes clear that the sell-off was actually triggered by the technology stock".

Guests arrive for Princess Eugenie's royal wedding
The group says Eugenie does not carry out royal duties and that weddings are personal, private occasions, not affairs of state. Eugenie met the designers when she was co-hosting an event in support of women artists, according to Buckingham Palace .

After Pummeling Florida and Georgia, Deadly Michael Heads to the Carolinas
This means federal funding is now available to those affected in the counties of Bay, Franklin, Gulf, Taylor, and Wakulla. The storm will then continue into southeastern Virginia and finally the Atlantic Ocean by late tonight or early Friday.

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The Trump administration has penalized almost half of all imports from China and has threatened more for the other half. This is down from its July forecast of 3.9 percent growth for both years.

"I don't think he's calling out the Fed, quote-unquote". He has repeatedly criticized the central bank for raising interest rates this year, decisions aimed at preventing the economy from overheating.

Jerome Powell, whom Trump elevated to the Fed's chairmanship, is trying to keep inflation in check and unwind the central bank's programs that were launched to rescue the economy after the 2008 financial crisis. "The Fed policy of normalization is exactly the appropriate one", said chairman Jacob Frenkel.

The daily charts indicate that stocks have essentially been under pressure since October 3 when U.S. Federal Reserve Chairman delivered hawkish comments about future rate hikes.

"They want to negotiate, they want to negotiate badly, but I told them, 'You're not ready yet". The Fed is expected to raise interest rates at least three times in 2019, up from the two hikes that it forecasted in December. The average yield on the 100 largest taxable USA money-market mutual funds averaged 1.95 percent this week, according to Crane Data.

"He is an individual that really understands the plumbing of the U.S. and global financial systems and one example is the reforms that are going underway on London Interbank Offered Rate, or Libor, for which he is one of the main sponsors", said Carney.

During an event earlier Wednesday amid the sell-off, Trump and his top economic adviser, Larry Kudlow, said they believed the American economy was robust. "I think what they're doing is wrong".

And while stocks could get a boost from strong corporate earnings, there are concerns the United States trade conflicts will start to undermine profits.

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