Is Trump to blame for the market dive?
A third, and related, factor: We just got a new Fed chair. As in, on Monday morning. And that chair's approach to monetary policy -- including how quickly to raise rates in any particular environment -- is a bit of a mystery.
Investors knew that his predecessor, Janet L. Yellen, was an inflation dove, meaning she was more willing to keep interest rates low for longer. But the new chair, Jerome H. Powell, may be inclined to speed up rate hikes in response to the recent wage and bond yield data. So investors may feel it's best to err on the side of assuming he's more hawkish. Which means that, faced with a report suggesting faster inflation could be on its way, they may choose to sell off stocks, just to be safe.
Finally, there's fiscal policy to consider.
We've seen Congress and the White House decide to blow up deficits of late. That includes the $1.5 trillion, deficit-financed tax cut passed in December, as well as costly proposals for an infrastructure package, Mexican border wall, and upgrading our nuclear arsenal.
All of these measures amount to economic stimulus. But with unemployment at 4.1 percent, now is a strange time to be engaging in expansionary fiscal policy. Usually you do that when the economy needs a boost. This has led to speculation that the Fed may feel more pressure to offset, or correct for, these stimulative fiscal policies; if Congress is going to step on the gas, Fed officials may conclude that they need to step on the brakes.
And again, with a new chair, it's even more difficult to deduce exactly how hard the Fed might step -- even slam -- on the brakes.
All that said, while presidents can influence markets, they don't control them. The best thing Trump and lawmakers can do to reassure investors would be to show they take their economic policymaking responsibilities seriously and are not just trying to score short-term stock-market spikes. And that, moreover, they recognize that the market is not the same thing as the economy.
Given the ugly numbers Monday, at least, they may have finally taken this last lesson to heart.
Catherine Rampell's email address is email@example.com. Follow her on Twitter, @crampell.
(c) 2018, Washington Post Writers Group
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Video: The Washington Post's Heather Long explains what's going on with the Dow Jones industrial average, which experienced its worst drop in about two years.(Jhaan Elker, Heather Long/The Washington Post)
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