Jerome “Jay” Powell, the Federal Reserve Chairman’s remarks made in a prepared talk at the Economic Club of New York offered some relief to the stock market. The Dow Jones Industrial Average shot up by 550 points with a changed outlook of Powell on the country’s economy as against what it was a couple of months before.
Powell clarified about there being no pre-determined interest rate policy and felt that the current interest rates were still lower than the wide range of predictions of levels that would have a neutral effect on the economy. His remarks earlier had prompted a sell-off in the stock market which earned him a terrific backlash from the U.S. President, Donald Trump. In spite of the Fed not being associated with politics and politicians, the President left no stone unturned in criticizing his choice of the Fed Chairman in the form of Jay Powell. The President put the blame on the recent meltdown in the stock market as well as the layoff announcement made by General Motors with regard to 15% of its personnel and the closure of its five plants squarely on the Fed Chairman. Trump went to the extent of thinking aloud about the Fed being more problematic than China.
However, the President blaming Powell totally for the stock market meltdown cannot hold wholly true. The fact remains that stock market prices to some degree are affected by larger interest rates but the tax cuts running its course as a stimulating factor could also have contributed in some part. The enlarged deficits that provide for the cuts also become a concerning issue.
As for the GM issue, higher interest rates was an insignificant factor, other causes such as commodity prices and the trade war fallout brought on by Trump along with falling automobile sales were larger contributory factors aggravating the GM issues.