Trump calls Fed 'only problem' in U.S. economy; markets slump

© Reuters. Trump meets Kuwait ruler at the White House in Washington

By Jason Lange

WASHINGTON (Reuters) - President Donald Trump blasted the Federal Reserve on Monday, describing it as the "only problem" for the U.S. economy, as top officials convened to discuss the growing rout in stock markets caused in part by the president's attacks on the central bank.

Stocks fell again on Monday amid concern about slowing economic growth, the government shutdown and reports that Trump had discussed firing Federal Reserve Chairman Jerome Powell, whom he has repeatedly criticized for raising interest rates.

U.S. stocks have dropped sharply in recent weeks on concerns over weaker economic growth. The S&P 500 index (SPX) was on pace for its biggest percentage decline in December since the Great Depression.

In a tweet that did nothing to ease market concerns about the Fed's cherished independence, the Republican president laid the blame for economic headwinds firmly at the feet of the central bank.

"The only problem our economy has is the Fed. They don't have a feel for the market," Trump said on Twitter. "The Fed is like a powerful golfer who can't score because he has no touch - he can't putt!"

In addition to frequently criticizing the Fed's rate hikes this year, Trump has gone after Powell several times, telling Reuters in August he was "not thrilled" with his own appointee. The Fed hiked interest rates again last week, as had been widely expected.

A crisis call on Monday between U.S. financial regulators and the Treasury Department did more to rattle markets than to assure them.

All three major indexes ended down more than 2 percent on the day before the Christmas holiday. The S&P 500 ended down about 19.8 percent from its Sept. 20 closing high, just shy of the 20 percent threshold that commonly defines a bear market.

Oil prices followed equities down, tumbling more than 6 percent to the lowest level in over a year.

Treasury Secretary Steven Mnuchin hosted a call with the president's Working Group on Financial Markets, a body known colloquially as the "Plunge Protection team," which normally only convenes during times of heavy market volatility.

Regulators on the call said they were not seeing anything out of the ordinary in financial markets during the recent sell-off and also discussed how they will continue critical operations during the partial government shutdown, according to two sources familiar with the matter.

On Sunday, Mnuchin made calls to top U.S. bankers and got reassurances that banks were still able to make loans, the Treasury said.

MARKETS LOWER AGAIN

If Mnuchin’s efforts were meant to soothe markets, that was not evident on Monday.

"When the Dow is down 600 points it's hard to say it was a positive," said J.J. Kinahan, chief market strategist at TD Ameritrade in Chicago. "Although his intention was a very good one, the net feeling I think was, ‘Is there a bigger problem that we don't know about?’"

Representative Maxine Waters, the top Democrat on the House of Representatives Financial Services Committee, said in a statement that Trump and Mnuchin's actions "have been erratic and are creating uncertainty and instability in the markets."

Wall Street is closely following reports that Trump had privately discussed the possibility of firing Powell, who became the Fed chief early last February after being appointed by Trump and has continued the path of gradual rate hikes started by his predecessor, Janet Yellen.

Mnuchin said on Saturday that Trump told him he had "never suggested firing" Powell.

Still, just the public suggestion that Trump might try to interfere so deeply with the Fed was unsettling to financial markets that have long operated on the presumption of the U.S. central bank's independence from political meddling.

Adding to the disquiet is the lack of clarity over whether Trump could in fact dismiss Powell.

Sarah Binder, a professor of political science at George Washington University, said it was “ambiguous legally” whether Trump could remove Powell from the chairman role.

The Federal Reserve Act is clear that Powell can only be removed from the Fed’s board of governors “for cause,” which is generally understood to mean malfeasance, rather than disagreements over interest rates, Binder said.

But it may be lawful for Trump to remove Powell from the chairman role, Binder said. When Congress last amended the statute in 1977, it did not address whether removal from the chairman role must be “for cause,” she said.

Troubles in Washington have escalated in recent days with a partial government shutdown that began on Saturday following an impasse in Congress over funds for a wall on the border with Mexico. Defense Secretary Jim Mattis' resignation on Thursday after Trump's surprise decision to pull U.S. troops out of Syria also unsettled investors.

But Mnuchin's response to the market concerns was seen as an overreaction in Wall Street circles.

"It seems unexpected, abrupt and unnecessary," said Michael Purves, chief global strategist at Weeden & Co in Greenwich, Connecticut.