US Treasury secretary: Economy strong, stock drop a ‘natural correction’

US Treasury Secretary Steven Mnuchin downplayed the recent decline in the stock market as “a natural correction” (AFP pic)

WASHINGTON: Treasury Secretary Steven Mnuchin said Friday the US economy remained strong and this week’s decline in the stock market was “just a natural correction.”

After two days of sharp drops in US and global stock markets over fears of rising interest rates and the US trade conflicts, Mnuchin said in an interview on CNBC that markets tended to go “too far in both directions” and then would have to correct.

But he said it was a “good thing” that Wall Street was poised to recover on Friday. He was speaking on the sidelines of the International Monetary Fund annual meeting in Bali, Indonesia.

Futures markets early Friday showed major indices were set to stage a small comeback after a two-day rout that erased several months of gains.

Investors also were watching the start of corporate earnings season, with major banks posting positive quarterly results on Friday morning.

Analysts said third-quarter earnings could reveal the extent to which US President Donald Trump’s trade conflicts may have dented profits.

Pre-market trading pointed to jumps for JP Morgan Chase, PNC Financial, Microsoft and Intel.

Mnuchin also downplayed concerns about Trump’s repeated and aggressive attacks on the US Federal Reserve this week, saying Trump “respects the independence of the Fed.”

Powell doing a ‘great job’

Trump by turns called the Fed “crazy” and “loco” and said it was being “too aggressive in raising rates,” blaming the institution for the market declines that saw the benchmark Dow Jones Industrial Average lose nearly 1,400 points in two days.

“The president’s been clear. He likes low interest rates. I think that’s really what it was about,” Mnuchin said, adding that Fed chair Jerome Powell is “doing a great job.”

“I think the fundamentals are still very strong. The US economy is strong, US earnings are strong. So I see this as just a natural correction after the markets were up a lot.”

Powell in the past has brushed off Trump’s taunts, saying political independence was in central bankers’ “DNA.”

Despite Trump’s attacks on the central bank, economists say that, with unemployment at its lowest level in 48 years and monthly job creation holding steady, the Fed is likely to stick to its current course of rate hikes, with another a fourth increase expected in December, and three or four in 2019.

Some Fed policymakers who in January will take a turn as voting members of the rate-setting Federal Open Market Committee have begun to send more hawkish signals, meaning putting them increasingly at odds with Trump.