International Monetary Fund chief Christine Lagarde is defending the Federal Reserve, saying rising interest rates are “legitimate and necessary” following U.S. President Donald Trump’s criticisms on Wednesday.
Stock markets tanked Wednesday, plunging more than 3 percent, the worst day the markets have seen in eight months. Trump said the central bank had “gone crazy,” blaming the Fed for the stock markets’ volatile week.
Per CNBC:
“The problem I have is with the Fed. The Fed is going wild. I mean, I don’t know what their problem is that they are raising interest rates and it’s ridiculous,” Trump said during a telephone interview with Fox host Shannon Bream. “The problem [causing the market drop] in my opinion is Treasury and the Fed. The Fed is going loco and there’s no reason for them to do it. I’m not happy about it.”
Lagarde pointed the finger at Trump and China during remarks at the IMF’s annual meeting in Bali for the escalating trade war with China as the culprit for the markets’ instability.
Per The Guardian:
“We certainly hope we don’t move in either direction of a trade war or a currency war. It will be detrimental on both accounts for all participants. And there would also be lots of innocent bystanders,” caught in the crossfire.
Growing tensions due to the trade war with China caused the IMF to downgrade its global growth projection earlier this week. The IMF scaled back its 3.9 percent global growth prediction for both 2018 and 2019 3.7 percent due to the tariffs on Chinese imports to the U.S.
Investors had largely ignored the tit-for-tat trade beef, with Trump boasting about the S&P 500 setting 102 new highs — until this week. U.S. stocks were the first domino to fall, plunging more than 3 percent on Wednesday and triggering big losses in Asia and Europe on Thursday.
“Some of the risks that we have highlighted, particularly at our spring meetings in April, have now begun to materialise, especially from the rising trade barriers.
“And if these tensions were to escalate, the global economy would take a significant hit. So our strong recommendation is to deescalate those tensions.”
For its part, the Trump administration is pointing toward China for allegedly devaluing its currency, offsetting some of the effects of Trump’s tariffs.
“If you compare the position of the renminbi relative to the dollar, it has a lot to do with the strength of the dollar. If you compare the same currency, the renminbi, with a basket of currencies, there is a bit of depreciation but certainly not as much.
Lagarde said China has decoupled its currency, the renminbi — also known as the yuan — from tracking the dollar to let it float more freely with other countries’ currencies.
“If you compare the position of the renminbi relative to the dollar, it has a lot to do with the strength of the dollar. If you compare the same currency, the renminbi, with a basket of currencies, there is a bit of depreciation but certainly not as much.
“And, you know, we have supported the move of China towards flexibility, and we have encouraged the authorities to continue along that path going forward,” she said.
Editor’s note: Is Trump partially to blame for the stock market tanking this week, or is China the culprit for devaluing its currency? Let us know your thoughts below.
