Mnuchin says market’s negative reaction to Fed ‘overblown’

9 2011 shows the US Federal Reserve building in Washington DC. AFP

The Senate has confirmed Michelle Bowman, a Kansas banking regulator, as a member of the Federal Reserve board, approving another nominee of President Donald Trump's to the seven-member board. The Fed boosted interest rates up a quarter-point to a range of 2.25 percent to 2.5 percent, the highest rate in more than a decade. "The market volatility is being driven by computer algorithm trading programs that instantly buy or sell everything, depending on the news they are getting fed".

Goldman Sachs economists said on Thursday they expect between one and two Fed rate hikes next year, down from three just a little more than a week ago.

-The U.S. dollar ticked higher after two days of sharp losses brought on by fears about the economy and slower increases in interest rates. But it's likely to do so at a slower pace. The Dow has lost almost 1,700 points, or 7 percent, over the last six trading sessions. Trump, who chose Powell to lead the Fed, is expressing concern that the Fed's rate increases could derail the economy.

The additional news conferences raise the likelihood that every Fed meeting could be the occasion for adjusting Fed policy in ways that might upset the markets.

Mnuchin said computerized program trading is driving stock prices down further, adding that he believed markets were disappointed in Powell's comments at a news conference following Fed's latest policy statement. No longer will the Fed be able to signal weeks in advance the near-certainty of a shift in rates. Those estimates are far below the Trump administration's insistence that its tax cuts would help accelerate annual growth to 3 percent in coming years.

The Fed maintained its optimistic assessment of economic activity and the labor market, noted that the unemployment rate has "remained low" as opposed to "declined", continued to observe that headline and core inflation were running near 2%, and tweaked its forward guidance for the policy rate. "History attests that unforeseen events as the year unfolds may buffet the economy and call for more than a slight change from policy projections released today". US stocks are on pace for their biggest December decline since 1931, the depths of the Great Depression.

Stock markets have behaved recently as if recession were around the corner, with the Dow, S&P 500 and Nasdaq each down more than 7.5 percent this month.

The Fed only slightly altered its description of the risks to the economic outlook from "appear roughly balanced" to "are roughly balanced" but hinted at greater emphasis on data dependence by saying that it "will continue to monitor global economic and financial developments and assess their implications for the economic outlook".

Benchmark 10-year Treasuries retreated after steep gains on Wednesday.

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For Powell, the economic outlook has become hazier as, in his words, "cross-currents" have emerged.

Late fall brought a dust cloud of bad news for the US economy, with shippers like Fedex cutting their global outlook for next year, chipmaker Micron Technology missing its revenue target as demand slides worldwide, and GM trimming 14,000 jobs as sales slow, not to mention a stock market limping into year end.

New Commerce Department data released Friday showed the US economy slowed more than expected in the third quarter, although the economy still appears to be robust.

But now, a day after fresh Fed forecasts showed most policymakers see two rate hikes next year and one in 2020, the betting in rate futures markets is that they will need to backtrack.

Trump has been relentless in making his feelings on the issue public. "The Fed needs to be paying attention to what's going on".

Responding the criticism from the White House, Powell told reporters that "political considerations play no role whatsoever" in discussions or decisions about monetary policy.

"We are encouraging investors to focus on solid fundamentals", Lynch said.

"We have the tools to carry it about".

That said, "I think the reaction has been a bit extreme relative to what we got", Gwinn added. "We at the Fed are absolutely committed to that mission and nothing will deter us from doing what we think is the right thing to do".

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