American stock market investors could be in for a bumpy ride.
After a historic bull run, a market that has grown used to cheap money over the past decade is becoming increasingly concerned that the Federal Reserve will aggressively raise benchmark interest rates.
Those concerns triggered a stock market sell-off last week, prompting President Donald Trump to weigh in with unprecedented criticism of the central bank.
In an interview with Fox Business on Tuesday, Trump reiterated that criticism.
“My biggest threat is the Fed because the Fed is raising rates too fast,” Trump said. “I don’t speak to (Fed Chair Jerome Powell) but I’m not happy with what he’s doing.”
Brian Battle, director at Performance Trust Capital Partners, said that while the market sell-off was due to a variety of factors, rising interest rates are definitely a key concern. And indications from Powell that rates had not yet peaked clearly spooked the market.
“The day before the sell-off, Jerome Powell gave a speech saying, ‘We are nowhere near tight so we are going to keep raising rates’ and then the wheels fell off because he expressed the certainty that the Fed believes the economy is doing great and they have plenty of room to raise rates,” said Battle.
And Battle believes the Fed is doing what it believes is right for the economy.
“The Federal Reserve has two goals,” said Battle. “Their goals are a stable value for the currency and full employment – that’s their job description. We definitely have full employment, we’re at an all-time low of below 4 percent – it’s like 3.8 percent – and inflation is low. So the Federal Reserve is going to raise rates because that’s what they are supposed to do. There’s an old saying that the Federal Reserve is supposed to take away the punch bowl just when the party gets going.”
Battle added that after a decade of abnormally low interest rates they need to raise rates to get back to a more normal posture.
“They’ve held rates very, very low for a very long time and it is reasonable to raise rates now just as the economy is picking up speed.”
Susan Schmidt, head of U.S. Equities Portfolio Management at Aviva Investors, says the recent sell-off is largely based on emotion.
“We’ve had this recovery for a very long time and everyone is wondering when does it end? Are we close to the end? Is this the beginning of the end? And no one wants to be the last man standing so everyone is looking over their shoulder,” said Schmidt. “So when you start to see a move down it compounds upon itself because that fear factor starts to set in.”
Schmidt said Trump’s attacks on the Fed are largely ignored by the market.
“While he is making comments about the Fed he is also making comments about China, about Boeing, about Toyota so I think the market has grown immune to his commentary,” said Schmidt. “The market expects him to attack the Fed at this point … the market has largely taken it in stride because it’s just how he communicates. It doesn’t really mean anything.”
Battle, Schmidt and syndicated personal finance columnist Terry Savage join “Chicago Tonight” to discuss the market outlook as interest rates rise.