Josh Boak, The Associated Press
Published Monday, December 24, 2018 11:59 AM EST
Last updated Monday, December 24, 2018 at. 13:30 EST
US President Donald Trump knocked out on the Federal Reserve Monday after the administration officials spent the weekend trying to insure public and financial markets that Jerome Powell's Fed president's job was secure.
"The only problem our economy has is the Fed," said the president on Monday. "They do not have a market feel, they do not understand the need for trade war or strong dollars or even democratization across borders.
On Wall Street, stocks were already down, but intensified after Trump's tweet. Markets were already facing their worst month in a decade of fear of a US trade war with China, a slower global economy and chaos in the Trump White House. Near the end of a holiday shortened trading session on Monday, the Dow Jones Industrial Average was out of more than 500 points.
Trump's latest tweet attack Fed was worried that any attempt to diminish Powell or remove him as president could destabilize the economy.
"He is seeking open warfare on Christmas Eve," said Peter Conti-Brown, a finance historian at the Wharton School of University of Pennsylvania. "We have never seen anything like this full blown and full frontal assault. This is a disaster for the Fed, a disaster for the president and a disaster for the economy."
The president has expressed frustration over Fed's decision to increase its key short-term rate four times this year. These movements are aimed at preventing the economy from overheating at a time of rapid growth and an unemployment rate close to half a century low.
At a press conference last week, Powell explained that price increases were indicative of the strength of the economy. But Trump sees the increases – which lead to higher loan costs for consumers and businesses – as an economic and political threat.
Trump's attacks are widely seen as an invasion of Fed's political independence, which exists to determine the cash flow based on economic data on employment and inflation.
Fed independence has long been among bedrocks in US financial markets. It ensures that central banks can make politically unpopular decisions, such as Combating high inflation in the 1980s or rescuing banks after the financial crisis in 2008.
Late. Richard Shelby from Alabama, a senior Republican at the Banking Committee, has warned against removing Powell.
"I would be very careful about doing so," Shelby told reporters on Saturday at the Capitol. "The Federal Reserve is set up to be independent."
Shares fell after Powell announced this year's fourth rate hike on Wednesday. But sales seemed to reflect concerns that the Fed is moving too fast in its plans to raise interest rates and reduce the huge portfolio of bonds with a slowdown expected in 2019.
Fed officials voted unanimously to increase rates last week. Among those who voted with Powell were three other board members elected by Trump: Richard Clarida, Randal Quarles, and Michelle Bowman.
The president expressed his dissatisfaction with the Fed on Monday after Finance Minister Steve Mnuchin had tweeted Saturday that Powell's job was safe.
Mnuchin also tweeted on Sunday that he had checked with the heads of the six largest US banks to ensure they had sufficient liquidity to operate on a stock market that has been heavily tumbled since October.
"My opinion is that Mnuchin tweets don't tell us much about the economy, but they give extraordinary insight into the chaos of the White House," said Joseph Brusuelas, chief economist at the consulting firm RSM. "Instead of setting self-confidence, it created confusion and raised more questions than it did. Prominent among them is how safe is Jay Powell's job as president of the Federal Reserve?"
The only problem our economy has is the Fed. They do not have a feel for the market, they do not understand the need for trade war or strong dollars or even democratic demolition across borders. The Fed is like a strong golfer who can't score because he has no touch – he can't putt!
– Donald J. Trump (@realDonaldTrump) December 24, 2018