A day of tumult on Wall Street was just a correction and not a reflection of a wider systemic issue, US Treasury Secretary Steven Mnuchin said.
“Markets are not efficient and markets move in both directions and at times they overshoot in both directions,” Mnuchin said early Thursday in an interview on the sidelines of the International Monetary Fund annual meetings in Bali, Indonesia.
“The fundamentals of the US economy continue to be extremely strong, I think that’s why the stock market has performed as well as it has. The fact that there’s somewhat of a correction given how much the market has gone up is not particularly surprising.”
Fresh concern about a trade war with China and rising interest rates have in part sparked a broad U.S. stock market sell-off, with the S&P 500 on Wednesday falling the most since February. Investors are concerned that the trade war is dampening the outlook for profits as signs mount that American companies may not be able to deliver the growth in the third-quarter earnings season that has bolstered equities so far in 2018.
The U.S. equities turbulence roiled through Asian markets early on Thursday, with the benchmarks from Tokyo to Hong Kong seeing declines in excess of 3 percent.
“As it relates to today, there was nothing that specifically occurred today,” Mnuchin said. “This is not a systemic issue.”
Mnuchin’s comments echo President Donald Trump’s stance on the market, who called it “a correction that we’ve been waiting for for a long time.” Trump also on Wednesday renewed criticism of the Federal Reserve for raising interest rates, calling it a “mistake” and later reiterated his view in a Fox Business interview that the Fed “is going loco.”
Mnuchin declined to comment on Trump’s latest attack on the U.S. central bank, though he repeated that the Fed has independence. Trump has been publicly criticizing the Fed since July for interest-rate increases and declared he was “not happy” in September when the central bank raised rates for the third time this year.
Trump, who has frequently invoked rising stock prices as an affirmation of his economic policies, downplayed the significance of the market drop even as he pointed the finger at the Fed.
“I think it’s good,” Trump said of the stock decline. “Actually, it’s a correction that we’ve been waiting for for a long time. But I really disagree with what the Fed is doing.”
Federal Reserve officials also sounded relaxed with Atlanta Fed President Raphael Bostic and Charles Evans, the Chicago Fed president, on Wednesday down playing the economic effects of the market decline.
“I won’t let a stock market move on its own reshape my view of the economy,” Bostic said. Evans said he wasn’t aware of “anything happening in the last couple of weeks that alter my basic take that financial stability conditions are reasonably moderate, and that we’re in reasonable shape at the moment.”
Mnuchin said that investors have deftly handled supply from the unwinding of the Fed’s financial crisis-era balance sheet. The Fed has been slowly reducing the its bond and mortgage-backed securities portfolio for the past year after determining that extraordinary monetary stimulus was no longer required with the economy on more solid footing.
“A lot of people were concerned when the QEs were done whether the Fed would ever be able to downsize and I think the market has handled the supply very well,’ Mnuchin said.
© 2018 Bloomberg L.P