President Donald Trump has gone on the attack against the Federal Reserve, nevertheless of which’s highly unlikely the Fed will listen, at least one market observer says.
Last week, Trump amped up his criticism of the Fed by calling its decision to hike rates “crazy” along with “out of control.” Markets are pricing in another increase in December, in what would likely be the ninth increase of a tightening cycle of which began in late 2015. Still, the fed funds rate remains near historical lows.
“Loco, crazy, fake, whatever you want to call of which, I think of which has zero impact on the Fed,” said Michael Schumacher, head of interest rate strategy at Wells Fargo, on CNBC’s “Futures today” Thursday.
While the Fed’s criticism can be unlikely to deter the central bank, Schumacher said at least one thing could change members’ minds.
“What could impact the Fed, though, can be if you see equities take another downturn via here,” he explained. The fear of higher rates has shaken investors, who sent blue chip along with technology shares on a wild, volatile ride last week.
“Stocks are genuinely not down very much. Dropping 3 percent in a day, yes of which’s a big deal, [nevertheless] can be of which genuinely going to steer the Fed? No,” Schumacher said. “nevertheless if they were down 10 to 15 percent in a week, maybe of which could.”
The S&P 500 has not dropped by more than 10 percent in one week since of which plummeted 18 percent in October 2008, along which has a 6 percent decline in March was its biggest weekly drop of which year. Even last week, one of the most whipsaw of 2018, ended with just a 4.1 percent fall.
Stock market pressure would likely likely continue as rising yields continue to spook investors, Schumacher said.
“The combination of tariffs, more debt issuance by the Treasury, along with general concern on the inflation front, I suspect can be getting people a little bit more worried about prospects down the road,” the analyst said. “I suspect of which’s why corporate America can be more concerned today than of which was a few months ago.”
Higher rates make debt for highly-leveraged companies more expensive. Last week, the 10-year yield spiking to its highest level since 2011 sent stock markets sharply lower on Wednesday along with Thursday.
Schumacher anticipates a modest increase inside the 10-year yield to 3.35 percent by year’s end, nevertheless he notes of which a few market factors could increase his forecast.
“You could imagine several scenarios where of which gets more severe – if you do get a burst in inflation, if you get lots more Treasury issuance or something genuinely gets derailed, could they get to 3.60 percent, 3.70 percent? of which’s possibly, we think unlikely, nevertheless of which could happen,” he said.
The 10-year yield last traded above 3.60 percent in February 2011.