Markets Shaken by Trump’s Fed Comments

 

President Trump Critical of Fed’s Rate Policy

In a significant break from protocol, President Trump was critical of the Fed’s current rate policy in an interview with CNBC.  This is one of the rare times in history in which a sitting President was openly critical of the Chair of the Federal Reserve and their rate policy.  The President expressed concern that higher rates were making the US uncompetitive with the EU  and China.  Claiming that the Fed’s policy compared to the actions of the ECB and the Chinese government and were counterproductive to his administration’s efforts to stimulate US economic growth. “I don’t like all of this work that we’re putting into the economy and then I see rates going up,” Trump said.  While the Fed has not expressed any response to the President’s comments, the Fed is clearly expected to ignore such comments and continue to direct monetary policy independent of politics. 

 

 

Banks and Rates Lead to Risk Off

Bank stocks were hit hard by President Trump’s comments on the Fed’s rate policy, and led equity markets lower.  All three major indices were down on the day, with the DJIA posting the largest loss (-0.53%).  The S&P and Nasdaq were down (-0.40%) and (-0.37%) respectively as well.  Across the curve treasury yields were lower between 2-4 bps.  The 10-year US Treasury note closed the day at a yield near 2.836%, lower by more than 3bps.  WTI crude futures settled higher on the day, up 0.9% at $68.01/barrel, following news that Saudi Arabia has no plans to oversupply the market.  In foreign exchange markets, the USD Dollar (USD) had a mixed day as it gained 0.5% against the British Pound (GBP), was nearly unchanged against the Euro (EUR) and fell 0.3% the Japanese Yen (JPY).

 

 

Jobless Claims Remain Low  

A light day of key economic data releases was highlighted by the weekly initial jobless claims report from the Labor Department, which printed at the lowest level in nearly half a century amid the backdrop of a strong economy and tight labor market.  The number of new claims for the week ended July 14th decreased 8,000 to a seasonally adjusted 207,000 (220,000 expected).  The four-week moving average of claims fell by 2,750 to 220,500 — again remaining near 50 year lows.  Also detailed in the report, the number of continuing claims increased by 8,000 to 1.75 million for the week ended July 7th.