The stock market shot to record highs on Tuesday before suffering a sharp reversal. You can probably guess who Trump blamed for the sell-off.
The U.S. stock market huffed and puffed to new all-time highs on Tuesday, prompting one of those classic Donald Trump tweets in which the president awkwardly admonishes us to spend our money wisely.
It’s as if Trump thinks we unlock a new tranche of cash every time the Dow Jones Industrial Average passes a new milestone:
But that’s not how it works at all…
Not that it matters.
Because shortly after peaking above 29,415 to set a new high-water mark, the Dow tumbled more than 150 points.
The Dow ultimately rallied off its session low, but not back into record territory. And not before a suddenly-irate President Trump stormed back to Twitter.
This time, he was the one doing the huffing and puffing, and he ripped into a familiar punching bag: Jerome Powell.
The Federal Reserve chair testified before Congress this morning, and Trump fumed that Powell hadn’t done enough to vindicate the stock market’s bullish appetite.
The irony is that Powell sounded remarkably upbeat about the state of the U.S. economy. Here’s how he described it:
“We find the U.S. economy in a very good place, performing well,” he said, although there are “signs of global growth bottoming out.”
That’s about as cheery as Powell gets.
But it wasn’t sanguine enough for Trump. He was probably looking for the Fed chair to sound a bit more like this:
To Trump’s point, Powell didn’t sugar-coat the risks that the economy faces as it plods deeper into the longest expansion in history.
He warned about the looming threat of the coronavirus outbreak, whose domestic and global impacts can’t yet be predicted with any degree of precision.
He also warned about the unsustainability of the federal budget deficit, which will likely surpass $1 trillion in 2020.
What was Powell supposed to do? Lie?
If anything, you could argue that he was too optimistic about U.S. growth and the health of the banking system. Regarding the latter, Powell claimed the central bank expects to cease its controversial liquidity injections by mid-year.
Despite trumpeting the economy as the “best in history,” Trump continues to demand that the Fed pump the stock market by driving interest rates even lower – potentially into negative territory.
Rates are already low, and Powell warned Congress that they’re so low that they will make it difficult for the Fed to combat the next economic downturn.
It’s clear that Trump craves a sharp decline in interest rates to juice the stock market ahead of a pivotal presidential election. Future recession be damned.
And for all Powell’s warnings, traders expect that Trump will get his way.
According to the latest data from CME, the futures markets imply another interest rate cut following the Fed’s July meeting. There’s a 45% probability that Trump gets a second one when the FOMC votes in December.
But with the presidential election scheduled for November 3, that December rate cut may come too late.