Mnuchin: Trump respects Fed but likes low interest rates

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Critics said it was convenient for Trump to blame the Fed when really his trade war with China- which is harming the global economy and raising prices for ordinary Americans - is to blame.

In addition, the looming increase in the federal budget deficit will require the Treasury to increase the amount of money it borrows.

"I think what you saw was a test and a failure ... and I think that prompted a lot of people to say, 'Oh my goodness, this is not what we're used to.' Support is supposed to hold and [stocks] are supposed to bounce".

Fed Chairman Jerome Powell is aiming to extend the second-longest USA economic expansion on record by moving interest rates up just quickly enough to prevent overheating, but not so rapidly that the central bank chokes off growth.

But one unintended outcome is that raising interest rates can scare off investors and precipitate a sell off in equities.

"I put $250bn worth of taxes, or tariffs, on China and it's had a big impact if you look at their economy now it's a whole different ball game".

And while he acknowledged higher rates helped savers, he criticized the Federal Reserve's tactics as 'too aggressive'.

The Fed last raised rates in September and left intact its plans to steadily tighten monetary policy, as it forecast that the USA economy would enjoy at least three more years of economic growth. But it remains low historically: It averaged 4% over the 1990s and 2000s. But history and precedent tell us that the Fed's ability to cause a sudden stock market crash may actually be limited.

The benchmark USA 10-year Treasury bond usually offers a lower return, or yield, than a typical index fund that tracks the S&P 500.

The Fed raised interest rates last month, and is expected to do so again in December.

In recent memory, no president has been so openly critical of the central bank.

President Donald Trump pauses as he speaks at a campaign rally at Erie Insurance Arena, Wednesday, Oct. 10, 2018, in Erie, Pa.

"The market seems to have accepted the Fed's rate path", said Megan Greene, chief economist at Manulife Asset Management.

"We want to make sure the depreciation is not being used for competitive purposes in trade".

Central bank officials worry that fiscal stimulus will hit the economy when it already faces resource constraints, which could lead to more inflation. "The president is not dictating policy to the Fed.They are independent".

The Federal Reserve is mandated by Congress to aim for low inflation and low unemployment.

Another problem with heightened inflation expectations is that real inflation hasn't shown much life. USA consumer prices rose only slightly in September.

Now, if rates continue to move higher, the USA government could have to pay a lot more interest on its debt. It required a brutal recession engineered by Fed Chairman Paul Volcker to squeeze inflation out of the economy. "I like to stay uninvolved", Trump said.

"I don't think any decision has been made with regard to a meeting", Mnuchin said when asked if the Chinese side had offered enough trade concessions to justify a meeting.

There's nothing like watching the stock market take a trillion-dollar one-day loss to get your attention.

But as the economy began to post solid and consistent growth following the global financial crisis of 2008, and prices began to creep higher, the central bank was anxious to return to a more normal policy.