Trump says he knows economy better than Federal Reserve chair

US stocks have plunged to their worst loss in eight months

RICHARD DREW APUS stocks have plunged to their worst loss in eight months

That is bad news for homebuyers and other prospective borrowers.

Trump on Wednesday slammed the Fed as "going loco" for its interest-rate increases this year in comments hours after the worst us stock market sell-off since February. "Inflation will come up eventually, so monetary policy will tighten and hopefully it can be engineered that there's a little bit of slowdown", he said.

But history and precedent tell us that the Fed's ability to cause a sudden stock market crash may actually be limited.

On Wednesday, the Dow fell 831 points, or 3.1 percent, to 25,598.

But beyond those headline numbers, the details of how the prices of different types of securities have moved relative to one another tell a story that is decidedly optimistic.

Trump said he had no intention of firing Jerome Powell, who he appointed as Fed chairman in February. "That suggests the Fed will keep raising rates, and that's taking the wind out of the stocks that have done the most, particularly in the tech sector".

The 10-year yield is now 3.20 percent, the highest in than seven years and up sharply form 2.82 percent in late August.

The S&P 500 is down 5.4 percent during its losing streak, which is its longest since a nine-day skid shortly before the 2016 presidential election.

Central bank policy has always been based on this counter-cyclical effect. "It's reflecting the possibility that this recovery has further legs". But according to the Wall Street Journal other officials have expressed a range of views, and some uncertainty, about how high rates would have to go to reach a so-called neutral level that neither spurs nor slows growth.

The yields of inflation-protected bonds have moved mostly in lock step with traditional bonds in recent weeks, suggesting that traders haven't become more anxious about inflation. The Fed has two mandates: maximum employment and stable prices.

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"We have interest rates going up at a clip that's much faster than certainly a lot of people, including myself, would have anticipated".

Concerns about higher rates have roiled the U.S. Treasury market, where yields have risen to multi-year highs. The Fed aims to raise rates to about 3 percent.

Ivan Feinseth, Chief Investment Officer at Tigress Financial Partners, said that although the sell-off caught him off-guard, he thought many investors were unduly frightened by the prospect of rising rates.

Moreover, Roberto Perli of Cornerstone Macro calculates that a big part of the higher rates is an increase in the "term premium". They weren't. They were using amusing money.

Interest rates are rising.

On Wednesday, Lagarde said world leaders should fix global trading systems instead of tearing them down, in response to nationalist politicians pushing tariffs and protectionism. "The trend is clearly up, and the market is betting that will continue".

Of course, there are downsides to the higher rates. Investors would withdraw money from the Indian markets as the United States ones would offer better rate of return. After months of declines, gold made its biggest jump in two years.

The fund this week cut its global forecast for the first time in two years and said growth may have plateaued, citing escalating trade tensions and growing stress in emerging markets, which have been struggling with higher borrowing costs and capital outflows as US rates rise. Lower demand then puts a damper on prices.

And markets, even deep and liquid ones like the bond market, aren't always right, and are frequently wrong.

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