This week's dizzying sell-offs in the financial markets have been a rude reminder the US economy is no longer relying on ultra-low interest rates to fuel growth.
You would expect that damping down economic growth would draw a negative reaction from USA markets because it signals an impending economic contraction. The data suggest there's little sense that interest rates are biting down on their business outlook.
"The truth is the Federal Reserve did go insane a few years ago and drove interests rate down to zero which had never happened in history".
United States shares fell sharply on Wednesday as the Dow Jones Industrial Average lost more than 800 points in its worst tumble since February.
That has so far been strong enough to warrant steady rate hikes, a sign from the Fed's perspective of an economy that has recovered more completely from the 2007 to 2009 financial crisis.
Among investors in federal funds futures, continued Fed rate hikes remained a solid bet, with a December increase assigned a 78 percent probability - down only 3 percentage points from before Wednesday's market turmoil and Trump's comments.
Trump has repeatedly touted the spate of Wall Street records as proof of the success of his economic program, including his confrontational trade strategy, and criticized the Fed for raising the benchmark interest rate - three times this year - saying it would undermines his efforts. "They're so tight. I think the Fed has gone insane", he said.
Mnuchin emphasised that the USA trade strategy was not to create a coalition of nations to "pressure" China, but rather to bring together nations who have "very, very similar issues [to those of the United States] as it relates to China". Trump is concerned that the Fed will raise interest rates too fast and hurt growth, a legitimate issue, he explained. The quick jump in yields in turn spooked equity investors amid fears that rising rates could dent corporate profits, slow economic growth and lead to a slump in stocks.
Consider that as rates are higher this year, the US government estimates it will pay interest of $518.17 billion on its debt in the fiscal year 2018. Most private forecasts expect the economy to expand roughly 3 percent this year, up from 2.3 percent a year ago.
But if the recent rise in rates turns more gradual, markets could be better able to digest it.
The President said the markets were way up over what they were. And that additional demand for debt generally causes borrowing rates to climb.
In addition, the looming increase in the federal budget deficit will require the Treasury to increase the amount of money it borrows. The yield on the 10-year Treasury note climbed above 3.23 percent at one point on October 10, up from 3.05 percent a week earlier, and is close to its highest level in seven years.
Whatever the case, Thompson said investors should make sure their portfolio is appropriately balanced at regular intervals. "We all anticipated it would have a very powerful short-term impact on economic activity".
Meanwhile, Europe's main stock markets slid by around 1.5% at the start of trading today following heavier falls across Asia and on Wall Street overnight. Economists generally agree that in order to prevent runaway inflation, the Federal Reserve can raise interest rates to restrain the money supply.
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