DoubleLines Gundlach: Rates a big part of sell-off

14 October, 2018, 03:02 | Author: Mary Valdez
  • US stocks have plunged to their worst loss in eight months

"I think the Fed is far too stringent, and they're making a mistake", Mr. Trump added.

"I think the Fed is making a mistake", Trump told reporters as he arrived for a campaign rally ahead of the USA midterm elections. "I think the Fed is out of control".

"It's a correction that we've been waiting for for a long time", he said of the more than 800-point drop.

At the closing bell, the Dow Jones Industrial Average was at 25,049.65, down 2.1 percent or 545 points, bringing its losses for the week to more than five percent.

Stock market falls do not sing in tune with his pre-election narrative as he has used recent record stock market values as proof of economic achievements by his administration. Although the drop was unusually large, the stock market has been on a historic run of gain since the president's inauguration. Economists generally agree that in order to prevent runaway inflation, the Federal Reserve can raise interest rates to restrain the money supply.

The Fed raised interest rates last month, and is expected to do so again in December.

US President Donald Trump looks on as Federal Reserve Chairman Jerome Powel speaks at the White House.

The central bank had raised the benchmark lending rate, which affects everything from mortgages to vehicle loans to bond yields, just twice before Mr Trump took office in January 2017, after a campaign in which he criticized the institution for allegedly keeping rates near zero in a bid to help his opponent.

On Wednesday, Trump said, "The Fed is going wild".

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Trump must provide relief to those who actually produce taxable income and small USA businesses, which are the heart of Main Street's economic activity.

Firstly the rising trade tensions, as the U.S. re-orientates its trade policy, throughout this year has weighed on European and Asia markets where companies tend to be more weighted to exporting goods and services, and secondly investors have slowly wised up to the fact that the slowdown being seen in the global economy, is likely to trickle down into potentially lower profit margins at a time when central banks, particularly the Federal Reserve are looking to normalise policy to prevent overheating a United States economy getting a bump from a significant fiscal boost. "I think the Fed is out of control". But the effects of changes in interest rates are not immediate and take time to ripple through the broader economy.

During a rally in Pennsylvania on Wednesday night, Trump said he didn't believe the Fed was accurately adjusting its interest rate policy in line with US economic data. "I think I know about it", he said.

Trump, however, pointed to the Federal Reserve System's recent decisions to raise interest rates as the more likely culprit. Now it's stalling, he blames the Federal Reserve for "going loco". Indeed depressed long-term rates had led some Fed officials to worry that short-term rates might rise above them and cause the sort of bond yield "inversion" that precedes recession.

Among the hardest hit areas of the market were those that had earlier been the biggest winners, such as technology stocks.

The yield on the 10-year U.S. Treasury note has risen to around 3.1 percent from around 2.1 percent over the past year.

The Fed was far too dovish for far to long.

Trump can create ways to lower interest rates on those who need to buy an automobile for work, so they can go to a job and produce income for the government to tax.



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