U.S. stock markets fell again on Thursday, with investors jittery over rising rates and trade woes.
After shedding 800 points on Wednesday, the Dow Jones Industrial Average continued on its negative path, closing down 546 points, or 2.1. percent at 25,053, while the S&P 500 was 1.8 percent lower at 2,738.89.
Among the biggest retail losers of the day were Sears Holding Corp., down 29.7 percent to 34 cents on reports that it was finally preparing for bankruptcy; Iconix Brand Group Inc., 10.3 percent to 22 cents; Abercrombie & Fitch Co., 5.5 percent to $17.99, and Urban Outfitters Inc., 2.3 percent to $38.06.
As well as worries over the worsening trade dispute between the U.S. and China and the looming threat of additional tariffs, investors are becoming increasingly nervous that the Federal Reserve’s policy of raising interest rates could start to drive the costs of financing higher, denting corporate profits. It’s already been raised eight times since 2015 and three times this year.
Investors aren’t the only ones with interest rates on their minds. Breaking with protocol as the White House does not usually comment on the independent Fed, President Trump told reporters on Wednesday that it was “making a mistake” by raising rates, adding that he thinks the rate setters have “gone crazy.”
He was clearly not done as on Thursday during an interview on “Fox and Friends,” he added: “The Fed is getting a little too cute. That’s all. It’s ridiculous what they’re doing.”
Perhaps seeking to diffuse the situation, Larry Kudlow, director of the National Economic Council, meaning he is President Trump’s top economic adviser, later stressed on CNBC that the Fed is in fact independent.
“The president has his own views. He’s stated them many times. There’s nothing new here as far as I can tell,” he said. “We all know the Fed is independent. The president is not dictating policy to the Fed. He didn’t say anything remotely like that.”
Their comments came as official data showed that consumer prices inflation edged up by just 0.1 percent in September. This pushed the annual rate down from 2.7 percent in August to 2.2 percent in September. Core inflation, which strips out volatile food and energy prices, remained at 2.2 percent, down from a high of 2.4 percent in July.
However, experts don’t believe that the weaker-than-expected inflation figures will deter the Fed from lifting rates. They pointed to the fact that the Fed prefers the personal consumption expenditures price index as a measure of inflation. It rose 2 percent in August — in line with the Fed’s inflation target for the fourth month in a row.
“The second consecutive modest rise in core consumer prices in September, together with the sell-off in the stock market, won’t be enough to prevent the ‘crazy’ Fed from raising rates again in December. We expect core inflation to rebound in the coming months and the slide in equities is probably just a temporary correction,” Michael Pearce, senior U.S. economist at Capital Economics, said.
“If equity prices continue to tumble over the coming weeks, the Fed will not be hiking rates. But as long as markets stabilize, solid activity growth and higher services inflation will be enough to keep the Fed on track to raise interest rates again in December.”