U.S. Stocks Take a Nosedive 🏊

 Michael Nager /Bloomberg News

Michael Nager /Bloomberg News

Bad day for investors

Yesterday, the Dow Jones Industrial Average - a stock index that tracks 30 large, U.S.-based companies - fell 832 points, or 3.15%, the third-worst point drop in a single day ever. The other two major stock indices were down as well: the S&P 500 fell 3.29% and the Nasdaq fell 4.08%.

Trump administration responds

Press Secretary Sarah Sanders was confident, saying, “The fundamentals and future of the U.S. economy remain incredibly strong...President Trump’s economic policies are the reasons for these historic successes." President Trump blamed interest rate hikes by the Federal Reserve for the stock slump, saying “I think the Fed is making a mistake. They’re so tight. I think Fed has gone crazy.


LESSON FOR TRUMP:

LA Times: The plummeting Dow teaches Trump about the folly of bragging on a stock market rise

Alternet: 'The Fed has Gone Crazy': Trump Sounds the Alarm Despite White House Assurances After Stock Market Plummets

One side believes this is a lesson for Trump. They point out that most politicians refrain from taking credit for a strong economy because markets fluctuate and presidential policies typically don’t affect the economy right away. Trump, on the other hand, has tied his political success to the economy. Articles highlight that yesterday’s stock slide could be attributed to a number of factors, but that the real question is how Trump will react if the economy continues to decline.

BLAME THE FED:

CNBC: The Fed is undergoing a major change, and the market is having a fit

Bloomberg: The Markets Might Agree With Trump on the Fed



Outlets who blame the Fed 
for the drop, in some ways, agree with President Trump: the Fed is spooking investors. Articles point out that there are lots of factors that could be hurting the stock market (like trade issues and oil prices) but that rapidly rising interest rates are definitely a cause. After a long period of low rates, the Fed has raised interest rates 3 times this year - with no end in sight. 


Should the Fed be raising interest rates?

Think of the Fed as a regulator of the speed of the economy. When the economy slows down (like in 2008), the Fed lowers borrowing rates to spur growth. When the economy grows quickly (like right now), the Fed raises borrowing rates to keep inflation away. This ensures there is gas in the tank to spur growth during the next slowdown. The global economy has been in a growth spurt and interest rates have been low for a long time, so it makes sense to start raising rates. Whether or not the Fed is raising rates too fast is a matter of debate...

The Fed trying to hit the brakes

092b9abd-3ec7-49be-915f-14b4c09d83f5.gif

 

Share this story!