Trump criticises ‘clueless Jay Powell’ as markets plunge

US president Donald Trump attacked the Federal Reserve again, while defending his trade war, as yields on US 30-year bonds hit record lows.

On August 14, the president criticised the Fed and its “clueless” chairman Jerome Powell for not reducing rates aggressively enough as investors flocked from US equities into Treasury securities. 

“We are winning, big time, against China. Companies & jobs are fleeing. Prices to us have not gone up, and in some cases, have come down,” Trump said in a tweet. “China is not our problem, though Hong Kong is not helping. Our problem is with the Fed. Raised too much & too fast. Now too slow to cut.”

On July 31, the Fed reduced its policy rate range by 25 basis points to 2-2.25%, in response to growing downside risks in trade and the global economy.

The president’s tweet was in reaction to a turbulent morning on Wall Street. The S&P 500 closed almost 3% lower on August 14 from close a day earlier. The Down Jones was also down just over 3% during the same period.

Ten-year treasury yields fell from 1.68% at the start of the day to 1.59% at close. The yield curve closed inverted with one-month treasury yields at 1.98% and 10-year treasuries at 1.59%. The yield curve has sustained its inversion since the beginning of August.

Today (August 15), 30-year treasury yields also fell, dipping below 2% for the first time for a record low of 1.94%. On average, including treasuries at all maturities, yields have fallen roughly 9.7% since August 1. The reduction suggests investors have sought a safe haven in government-backed assets as fears over a global slowdown intensify.

“Spread is way too much as other countries say THANK YOU to clueless Jay Powell and the Federal Reserve. Germany, and many others, are playing the game! CRAZY INVERTED YIELD CURVE! We should easily be reaping big Rewards & Gains, but the Fed is holding us back,” Trump added in a further tweet.

The president’s latest remarks add to a list of previous attacks aimed at the Fed and Powell. His actions contrast sharply with those of previous US presidents, who almost always respected the Fed’s independence of the institution. It remains to be seen whether his interventions will have any impact on the Federal Open Market Committee’s (FOMC) policy-making process.

On this occasion, it appears Trump is attempting to deflect the blame of the slowing US economy onto the Fed and away from the series of tariffs he has placed on imported goods.

US GDP increased at an annual rate of 2.1% in the second quarter of this year, down from 3.1% in the first quarter. The FOMC projected growth to be 2.1% for 2019 when the last forecasts were published in June.

On August 2, the trade war escalated when Trump said he would place a 10% tariff on $300 billion of additional Chinese goods. The announcement sent the S&P 500 and the Dow Jones downwards, with a roughly 1% sell off.

On August 12, however, Trump quickly retreated from his earlier aggressive tariff announcement. He said he will delay the new tariffs, which were set to be implemented September 1, until after mid-December to avoid harming consumers heading into Christmas.