Trump’s Favorite Barometer Is Warning Him

(Bloomberg Opinion) -- The stock market is calling the White House to account, and it won't be easily distracted.   

The S&P 500 Index has tumbled 19.8 percent from its recent high on Sept. 20 through Monday, just shy of a 20 percent decline that customarily defines a bear market. It's no doubt a bitter pill for President Donald Trump. He fancies himself a champion of American business and gauges his success by the level of the stock market. With stock prices plummeting, the president can't feel great about how things are going.  

Rather than rethink its policies, the White House has turned to its well-worn playbook of distraction and blame. It won't work. Stocks don't care much for politics, but they care a lot about stability, the economy and how companies perform. If Trump wants to pacify the market, he will have to address the issues it actually cares about.

Instead, Trump's spin offensive started with reports late Friday that he had discussed firing Federal Reserve Chairman Jerome Powell after the Fed raised interest rates last week, even as stock prices were in sharp decline. Treasury Secretary Steven Mnuchin tried to walk back the threat on Saturday, saying that Trump told him he had “never suggested firing” Powell.

But it doesn't matter because, legal questions aside, firing Powell would plainly be a non sequitur. The Fed's mandate is to maximize employment and tame inflation, not fiddle with asset prices. The Fed chair is also just one voting member of the Federal Open Market Committee, the body that makes decisions about monetary policy, so replacing Powell wouldn't necessarily change Fed policy.

Then Mnuchin got in the act. He called top executives from the six biggest U.S. banks over the weekend and announced on Twitter that “they have ample liquidity available for lending to consumer, business markets, and all other market operations.”

Of course they do. Lawmakers and regulators took care after the 2008 financial crisis to tighten banking rules, raise reserve requirements, reduce leverage in the banking system and limit banks from gambling with their money. That's why there are few concerns that the next crisis will be a repeat of the last one.  

Mnuchin also convened a call with the president's Working Group on Financial Markets on Monday, which includes officials from the Fed and the Securities and Exchange Commission. The group, ironically known as the “Plunge Protection Team,” has no more control over the market than Powell, so it's not clear what they were convened to do, other than divert attention from the market's real threats.

Not surprisingly, the market wasn't comforted by the administration's busywork. The S&P 500 resumed its decline Monday morning, and Trump still didn't get the message. He intensified the attack, saying that “the only problem our economy has is the Fed.” The index closed down 2.7 percent for the day, the worst one-day decline since the market's recent losing streak began on Dec. 14.

As others have already noted, the administration's response to the market may be heightening its concerns. Trump seemed to finally realize that on Tuesday, telling reporters that he has confidence in Mnuchin, the Fed and the U.S. economy after reports surfaced that Trump weighed firing Mnuchin, too. 

It hardly needs saying that this is no game. An economic slowdown would mean job insecurity for millions of Americans, many of them poor and middle-class workers that Trump professes to care about. And a deeper market slump would squash many Americans' savings, raising the chances that they will make costly financial mistakes.   

No, the market isn't all about Trump. It is reminding the White House, however, that its policies have a price. Not maybe, not somewhere down the line, but here and now. It's not a cost Trump seems willing to bear, and sooner or later his administration will have to do better than symbolic gestures and fake outrage. 

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young.

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