Markets Right Now: Banks, technology lead United States stocks lower

President Trump Says the Federal Reserve Is a 'Much Bigger Problem Than China'

Federal Reserve Chairman Jerome Powell touched off a surge in stock prices Wednesday after saying the outlook for the US economy remains solid and interest rates are almost within a "neutral" range.

He said interest rates are "just below" their so-called neutral range, the level at which they're neither speeding up nor slowing down the economy.

When stock markets fell last month, Mr Trump blamed the Fed, accusing it of being "crazy" and "loco" for raising interest rates too fast. So far, I'm not even a little bit happy with my selection of Jay [Powell]. Not the outlook for the United States economy which, while expected to see a slower rate of growth in 2019, is still growing at a sufficient pace to justify further increases in the cost of borrowing. I'm not going to say it's so much Trump ー that Trump has been sending mean tweets about Chairman Powell.

Trump has been attacking Powell since last summer as the central bank was raising rates, and the criticism escalated last month as the stock market took a nosedive. But the latter's shift-that the Fed now is not far from the neutral rate-reflects what's happened in markets.

Fed Powell dampens expectations, but multiple rate hikes remain on the table. "And I'm not blaming anybody, but I'm just telling you I think that the Fed is way off base with what they're doing, number one".

Because of the optimistic report and no mention of potential interest rate increases in Powell's address, the Dow Jones Industrial Average rose over 400 points in midday trading on Wednesday. The BOE's Financial Policy Committee (FCP), which monitors the functionality of Britain's financial system to ensure it can fulfill its responsibilities when markets are either smooth or rocky, publishes the financial stability report which evaluates the effects of possible adverse shocks to the banking system and economy in the UK. US President Donald Trump's meeting with his Chinese counterpart Xi Jinping at the weekend is likely to hog investors' attention.

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While campaigning for president in 2016, Trump had been critical of the Yellen Fed, contending that under her, the central bank was keeping rates abnormally low to try to help Democrats. In the question-and-answer period following his speech, the Fed chairman agreed with the consensus view that monetary policy's goals should remain focused on low unemployment and stable inflation rather than targeting financial markets such as stocks.

While Powell said Fed officials are monitoring these risks, they are not on the whole too anxious about them. "Of course, we will continue to monitor developments in this sector carefully", Powell said.

In the end, Powell may end up giving Mr. Trump what he wants, though not because of the president's jawboning.

Among the conclusions, he said the central bank did not see "dangerous excesses" in stock markets, while the financial system was now "substantially more resilient" than it was before the 2008 financial crisis.

While leverage can boost hedge fund returns, the Fed said it also "exposes their counterparties to risks and raises the possibility that adverse shocks would result in forced asset sales" that could drive down asset prices.

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