Donald Trump does not go around bluntly showing his dissatisfaction with the strategy of raising interest rates of the Federal Reserve. He says it every time the opportunity presents itself, although until now he had tried to be sympathetic to the policy of Jerome Powell, the president of the US central bank, which he named. But this Wednesday he took his critical line to the extreme when asked about the steep fall suffered by Wall Street during the session. "I think the Fed is making a mistake," he said, "I think the Fed has gone crazy."
The Dow Jones bid farewell to the day with a fall of more than 3.1%, the worst since February. The Nasdaq suffered an even bigger slump, of more than 4%, the largest since Brexit, in June 2016. It was as if all the imbalances showed up at the same time, just a week after Powell himself affirmed in a speech that interest rates were still far from reaching a neutral position – one in which they do not affect economic growth. "It's a correction that was seen coming for a long time," said the Republican tycoon.
The price of money in the US is now in a band between 2% and 2.25%, after the last increase decided two weeks ago. In his last speeches, Powell had made it clear that he is determined to move forward with the gradual withdrawal of monetary stimuli, to prevent the economy from overheating. But the members of the central bank see even a possible a new rise in December. "I really disagree," Trump insisted.
The US president believes that the Fed "is going too fast" with the rate hike and considers that low inflation in principle gives it scope to go more calmly. He also says that this strategy can put stones to his plan for economic reactivation, because it raises the cost of debt to consumers by paying the bills of their homes or cars. But he also recognizes that, if the withdrawal of stimuli is underway, it is precisely because the US economy is going from strength to strength.
The rise in interest rates is, in fact, one of the factors behind the strong correction suffered on Wednesday by New York parquet, and that is also reflected in the markets of emerging countries, hit by the strengthening of the dollar. The increase in the price of money greatly increases the attractiveness of bonds and corporate bonds to the detriment of equities. A strong currency, in turn, affects the results of multinationals.
The volatility index (VIX) rose more than 35% during the session, although it is still halfway to the levels recorded at the end of February, when the stock markets were also hit. The interest of the 10-year bond, another of the indicators to measure market stress, is 3.2%.
But behind the Wall Street bump there are, however, a number of factors beyond the Federal Reserve: the benchmark indexes are reaching record highs and in the minds of investors also weighs the uncertainty of commercial litigation with China. This game of forces was clearly seen in specific values such as Nike, which lost almost 7% in just one day, or Boeing, which fell by 4.7%. Technology suffered a lot, with Amazon falling 6.1%, Microsoft 5.4% and Apple more than 4.6%.
Powell, who took over from Janet Yellen – also criticized by Trump – at the Fed eight months ago, made it clear that his strategy responds to the evolution of the economy and not to political issues. But the president's comments, which he repeated since last summer, are seen as a clear attack on the independence of the most powerful central bank in the world. And autonomy is the value par excellence for the guardian of monetary policy.
The Tokyo Stock Exchange was plummeting this Thursday at half a session more than 4% dragged by the sharp decline in Wall Street. When the operations recovered after the mid-day break, the Nikkei reference Tokyo index accumulated a fall of 1,023.33 points, 4.35%, and stood at 22,482.71 points.
The general index of the Shanghai Stock Exchange, main indicator of the Chinese parquets, registered on Thursday strong drops in the opening of 3.04%, equivalent to 82.76 points, and in the first minutes stood at 2,643.07 whole.
The stock markets of Southeast Asia also started the trading day with heavy losses in all the parks.