President Trump on Wednesday lashed out Federal Reserve Chairman Jerome Powell, calling him “clueless” as U.S. stock indexes took a dive amid looming signs that a recession could be on the horizon as Trump’s trade war threatens to derail the U.S. economy.
As the blue-chip Dow Jones industrial average sank 800 points, or 3.1%, to 25,479, Trump tweeted: “We are winning, big time, against China. Companies & jobs are fleeing.”
“Prices to us have not gone up, and in some cases, have come down. China is not our problem, though Hong Kong is not helping. Our problem is with the Fed. Raised too much & too fast. Now too slow to cut. Spread is way too much as other countries say THANK YOU to clueless Jay Powell and the Federal Reserve,” Trump tweeted from his golf club in New Jersey.
“Germany, and many others, are playing the game! CRAZY INVERTED YIELD CURVE! We should easily be reaping big Rewards & Gains, but the Fed is holding us back. We will Win!”
..Spread is way too much as other countries say THANK YOU to clueless Jay Powell and the Federal Reserve. Germany, and many others, are playing the game! CRAZY INVERTED YIELD CURVE! We should easily be reaping big Rewards & Gains, but the Fed is holding us back. We will Win!
— Donald J. Trump (@realDonaldTrump) August 14, 2019
Wednesday’s sell-off came after the yield on 10-year U.S. Treasury bonds fell below the yield on two-year bonds for the first time since 2007.
The Hill reports:
When 10-year bonds trade cheaper than two-year bonds, a recession tends to follow within 12 to 18 months, reports
The yield curve inversion follows Trump’s decision Tuesday to delay further tariffs until after the bulk of the holiday shopping season, reflecting mounting fears that the trade war could derail the robust U.S. economy.
While markets rallied after the delay was announced, the decision “does not greatly improve the outlook,” said Mark Haefele, global chief investment officer for the wealth management business at Swiss lender UBS.
“Tuesday’s announcement makes it clearer in our view that President Trump really intends to implement the tariffs first threatened in a tweet on Aug. 1,” said Haefele. “Rather than a negotiating tactic, the tweet was what it appeared to be: another escalation of the trade dispute.”
Economists at Bank of America see a 1-in-3 chance of a downturn within the next year as tariffs drive up consumer costs and restrain business spending, while the Federal Reserve finds itself with a more limited toolkit to fight the decline.