Trump vs. The Federal Reserve

(report from 10/12/2018)
Good Morning,

The stock market has taken a beating all week and based on the attached CNBC article President Trump blames the Federal Reserve. While entertaining, this is a lot deeper than assuming that rising rates caused the collapse. A couple of points worth considering are:

1. 2017 saw synchronized growth, but 2018 has been different as the US has shaken off the February pull back while the rest of the world has stayed lower

2. Volatility has been low despite all the political events which should have increased it

3. IMF downgraded growth for 2019 across a majority of nations

The most prominent theme that people have missed is that trade and politics matter. The trade war (which Pence quietly called a Cold War) with China has been primarily ignored within domestic markets, but the reality is starting to set in that companies and consumers will still be impacted. The article mentioned a higher dollar, but what this does is increase the cost of foreign countries and foreign consumers which use US products. Also with the price of oil increases, it indirectly takes away disposable funds to buy other goods. Unfortunately, the Fed cannot depend on the government to use fiscal policy to help out the economy (corporate tax policy was a jolt but that was a one time bump, and it changes drastically in 2021), so they must use monetary policy. They have already taken out a lot of the liquidity from the market, but they needed to raise rates to decrease the appetite for risk and give them a tool in case we have another drastic downturn.

While it is gut-wrenching to see the market drop while being invested, nothing is a straight line and we have been doing better than expected this year so something had to give.
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#financialliteracy #cnbc #stockmarket #trump #tradewar #pence #china #downturn #fed #federalreserve #imf #growth #globalgrowth #financialfloyd #phillyfinance

https:///www.cnbc.com/amp/2018/10/11/trump-says-the-stock-market-correction-caused-by-the-federal-reserve.html?amp_js_v=0.1#referrer=https%3A%2F%2Fwww.google.com&amp_tf=From%20%251%24s&ampshare=https%3A%2F%2Fwww.cnbc.com%2F2018%2F10%2F11%2Ftrump-says-the-stock-market-correction-caused-by-the-federal-reserve.html


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