Higher Interest Rates Signal US Might - And Risk

"I think a lot of presidents have been frustrated by the Fed, they just in recent years haven't said so in public", David Wessel of the Washington-based Brookings Institution told AFP. And despite that, we're doing very well, but it's not necessary, in my opinion. If Trump goes further and tries to remove Powell or otherwise influence Fed policy, it could cause him bigger problems. "I'm just disappointed at the clip" that rates are being raised.

No final decision has been made whether US President Donald Trump and Chinese President Xi Jinping will meet at the gathering of G20 leaders in Buenos Aires, Argentina at the end of November, US Treasury Secretary Steven Mnuchin said on Saturday.

US stocks tumbled Wednesday the most since February as fresh concern about the impact of the trade war with China roiled technology and industrial shares.

Can Fed Policy Cause Sudden Stock Market Crashes?

In February, when a selloff caused the S&P 500 to fall 10%, the president switched tactics, claiming the stock market had failed to reflect the strong economy.

The benchmark Nikkei 225 dropped almost two percent at the open and extended losses to below the three-percent mark, as traders fretted about surging interest rates and an ongoing trade spat.

To the extent that financial markets are rational in the short term - they are rational in the long term - having long-term Treasury rates rise make sense to me. It had been anchored at virtually zero for seven years following the 2008 financial crisis.

You would expect that damping down economic growth would draw a negative reaction from USA markets because it signals an impending economic contraction.

Right now, the Fed is raising rates as there are factors at play that could hurt the US economy. (See also: Dissecting The Bear Stearns Hedge Fund Collapse).

Trump has been publicly criticising the Fed - led by chairman Powell, whom he appointed - since July for interest-rate increases and declared he was "not happy" in September after the third rate hike of the year.

Federal budget deficits, driven by tax cuts and spending increases, are also at play.

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The Federal Reserve is mandated by Congress to aim for low inflation and low unemployment. The rate is an estimate and its calculation depends on a host of factors, including inflation and the state of the global economy. When a bond's price falls, its yield rises, and the 30-year Treasury yield rose above 3.40 percent at one point October 10, up from 2.89 percent a year ago. As Hurricane Michael pounded the Southeast on Wednesday, Trump took shelter at the campaign rally in Pennsylvania, where he sought to boost Republicans before the midterms.

The central bank's preferred measure of inflation is roughly at policy makers' 2 percent objective, and Powell said last week that "the outlook of forecasters inside and outside the Fed is for more of the same".

But faster growth can produce some pain for the stock market and homebuyers as rates adjust upward. Yet other factors, which might have more direct implications for US monetary policy, were also said to have played a part.

Trump said Tuesday that the economy is enjoying "record-setting" numbers and "I don't want to slow it down even a little bit, especially when we don't have the problem of inflation". "The fact that there's a market correction is not particularly surprising".

Vanessa Coleman

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