President Donald Trump's 24-hour bashing of the Federal Reserve is unlikely, for now, to shake the central bank's standing among its two key constituencies that matter more: financial markets and Congress.
"It's a correction that I think is caused by the Federal Reserve with interest rates", Trump said when asked by reporters in the Oval Office about the stock market swoon. Now, in traditional economic thinking, low unemployment leads to rising wages, which leads to inflation, which leads to higher policy rates.
President Donald Trump is not known to mince words.
President Trump placed the blame on the Federal Reserve's interest rate hikes for driving a selloff in the stock market Wednesday, saying the central bank "has gone insane". On Thursday, he told Fox News the central bank "is going loco".
Trump's comments on the central bank Wednesday came a day after he said he did not like what they were doing in terms of monetary policy.
US President Donald Trump blamed the Federal Reserve for market sell-off in NY on Wednesday.
Analysts in the U.S. are still positive on the outlook for the United States economy, as is the Federal Reserve, which says it is still on course to raise USA interest rates in December. If we need to raise rates more than expected we can do that in a reasonable way.
The unemployment rate in September dipped to 3.7 percent, a level not seen in almost half a century, while an inflation report on Thursday indicated the pace of price increases remained under control around the Fed's target.
"But the Powell Fed has shown more confidence in the face of market uncertainty and we don't expect any change in tone".
"Everyone knows the Fed isn't acting insane".
In September, the Fed raised interest rates by 25 basis points for the third time in 2018, raising the target range for its benchmark rate to 2%-2.25%.
For a president who has frequently invoked rising stock prices as affirmation for his economic policies, criticism of the Fed lays ground for shifting blame elsewhere if the market slide continues.
"We are already witnessing some softness in highly rate-sensitive segments of the economy, such as the housing sector, where home price appreciation has slowed somewhat and fewer new homes are being built than previously in the cycle", said Rick Rieder, the chief investment officer of global fixed income at BlackRock, in a note on Thursday.
The policy could eventually bite harder into parts of the economy that are both sensitive to interest rates and connected to politically important industries, such as autos and home construction and sales.
If anything, the market turmoil reflects concerns that the economy could grow too fast, forcing the Fed to move aggressively to snuff out inflation. But until this summer, he had lodged no criticism of the Fed's rate hikes. In a speech in Boston on October 2, Jerome Powell pointed out that at least since 1995, there has been no consistent inverse correlation between low unemployment and rising inflation. "The fact that there's somewhat of a correction given how much the market has gone up is not particularly surprising".
A market-based gauge of the annual US inflation rate for the next decade - the 10-year breakeven rate - declined this week to 2.13 percent from close to a four-month high of 2.17 percent reached last week.
"What is happening now is that for every major economic release, investors are looking for data, whether it confirms what Powell said or contrasts what Powell has said", Arone told Business Insider.