Many economists warned that President Trump’s focus on the stock market could have painful consequences. In recent days, it has become apparent why. Trump and his top deputies are focused on trying to stop the market slide, but they are helping drive the market down even further.
Trump blames Federal Reserve Board Chair Jerome H. Powell, his own choice for the post, for the steep stock sell-off. Many on Wall Street say Trump deserves some blame, too.
The president has complained about Powell for months, but in recent days he’s been asking around about whether he can fire Powell, which would be an unprecedented act in the United States and one that would spook markets and banks.
Treasury Secretary Steven Mnuchin and incoming chief of staff Mick Mulvaney this weekend insisted the president knows he can’t fire Powell, and the law says a Fed leader can be removed only “for cause,” which courts have interpreted as criminal activity.
But Trump never issued his own statement to dampen fears he wants to fire Powell, and on Monday he ripped the Fed again.
“The only problem our economy has is the Fed. They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders,” Trump said on Twitter.
Markets fell further after Mnuchin put out a statement Sunday saying he had spoken with the heads of the country’s six largest banks and had been told “they have ample liquidity” to keep lending. Almost no one was worried about this — until Mnuchin said he was monitoring it during time away from a vacation in Mexico.
Mnuchin said he would spend Monday on the phone with a group of top officials known colloquially as the Plunge Protection Team (the formal name is the President’s Working Group on Financial Markets). This group hasn’t been very active since 2008 to 2009, when the nation was in a massive financial crisis, which is why many economists are asking: If there are no problems, why call now?
“If you wanted to create financial market volatility, this is how you would do it. Why a Treasury Secretary is in that game is beyond me,” tweeted economist Justin Wolfers, echoing the sentiment of many economists and traders.
A top Treasury official tried again to calm markets Monday by saying Mnuchin was taking a “prudent, preemptive measure” to reassure Americans everyone is doing fine after the markets suffered their worst weekly loss since 2008 last week. But the damage appears done — as markets continued a deep slide Monday.
Analysts' read on Mnuchin’s statement is that he either made a mistake or he knows something few others know. Neither scenario is likely to reassure investors.
“There were already fires burning in the financial markets and the economy that are related to uncertainty. This simply pours jet fuel onto that uncertainty quotient,” said Mark Hamrick, senior analyst at Bankrate.
The stock market was open only a half-day Monday. It’s typically a sleepy day with little trading because everyone just wants to go home and eat. But not this time. The major indexes fell sharply, and the world watched as America’s long bull run that began in March 2009 almost came to an official end.
The S&P 500, the most widely held U.S. stock index, is in bear market if you measure from the all-time high on Sept. 20. Howard Silverblatt, the master data cruncher at S&P Dow Jones Indices, says if you measure from the Sept. 20 close to the Dec. 24 close, the market is down 19.78 percent, which is “just shy” on an official bear market.
The Nasdaq is already in a bear market and the Dow Jones industrial average is very close. The stock slide began in October and escalated in December.
The White House’s weekend of mistakes is piling upon weeks of heightened presidential anger and strife. The government is shut down with no end in sight, top aides such as Defense Secretary Jim Mattis are quitting and issuing public rebukes of the president, and Trump has called himself a “Tariff Man” just as business leaders thought there was hope for trade deals.
The volatility is coming amid a backstop of what appears to be a very strong economy — the best in more than a decade. Growth is likely to hit 3 percent this year, the best since 2006, and the job market is the strongest since 2000, if not before. Unemployment is at the lowest in nearly 50 years. Even wages finally look a little better in many industries after years of few, if any, raises.
Yet Trump is focused on stocks, which are often divorced from the “real economy” — a problem President Barack Obama encountered while trying to explain why stocks were rallying in 2010 yet much of America was still suffering.
Now the risk for Trump is that the chaos in Washington and volatility in the markets spill over into the real economy, and businesses and consumers begin to question whether they need to pull back.
The story has been updated to reflect the official S&P Dow Jones Indices bear market calculations.