By Jason Lange
WASHINGTON (Reuters) - President Donald Trump blasted the Federal Reserve on Monday, describing it as the "only problem" for the U.S. economy, as top officials discussed a rout in stock markets caused in part by the president's attacks on the central bank.
Stocks fell again at the open on Monday amid concern about slowing economic growth, the government shutdown and reports that Trump had discussed firing Federal Reserve Chairman Jerome Powell.
U.S. stocks have dropped sharply in recent weeks on concerns over weaker economic growth, with the S&P 500 index on pace for its biggest percentage decline in December since the Great Depression.
In a tweet that did nothing to ease market concerns about the Fed's cherished independence, Trump laid the blame for economic headwinds firmly at the feet of the central bank.
"The only problem our economy has is the Fed. They don't have a feel for the market," Trump said on Twitter. "The Fed is like a powerful golfer who can't score because he has no touch - he can't putt!"
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Trump has gone after Powell several times now, telling Reuters in August he was "not thrilled" with his own appointee and said the Fed should do more to help him boost the economy.
U.S. financial regulators told the Treasury Department on Monday they were not seeing anything out of the ordinary in financial markets during the recent sell-off, according to a source familiar with the matter.
Treasury Secretary Steven Mnuchin hosted the call with the president's Working Group on Financial Markets, a body known colloquially as the "Plunge Protection team," which normally only convenes during times of heavy market volatility.
Regulators also discussed on Monday's call how they will continue critical operations during the partial government shutdown.
Mnuchin also made calls to top U.S. bankers on Sunday and got reassurances that banks were still able to make loans, the Treasury said.
MARKETS LOWER AGAINIf Mnuchin's efforts were meant to soothe markets, that was not evident early on Monday as Wall Street traded sharply lower in a shortened session ahead of Tuesday's Christmas holiday. All the 11 major S&P 500 sectors were down, and all but one of the 30 components of the Dow Industrials were in the red, pushing them closer to bear territory.
For the third straight day, more than 2,500 New York Stock Exchange- and Nasdaq-listed stocks were hitting 52-week lows, reflecting a depth of selling the market had not experienced since the height of the financial crisis a decade ago.However, trading volumes were muted on Monday, with markets closing at 1 p.m. EST (1800 GMT) ahead of Christmas. A statement by Mnuchin on Sunday about his conversation with the banks and plans to convene the Plunge Protection Team "was not especially comforting, however, given that investors had not generally been questioning market functioning in recent days, despite large declines," Nick Bennenbroek, currency strategist at Wells Fargo in New York, wrote in a note to clients.
Wall Street is also closely following reports that Trump has privately discussed the possibility of firing the Fed's Powell. Mnuchin said on Saturday that Trump told him he had "never suggested firing" Powell. Still, just the public suggestion that Trump might try to interfere so deeply with the Fed was unsettling to financial markets that have long operated on the presumption of the U.S. central bank's independence from political meddling.
POWELL FIRING?
Adding to that disquiet is the lack of clarity over whether Trump could in fact dismiss Powell. "The law is, at best, ambiguous," Cornerstone Macro partner Roberto Perli wrote on Monday. The Federal Reserve Act empowers the president to dismiss a Federal Reserve board of governors member "for cause." "Typically, 'for cause' is understood to apply to situations where someone commits egregious ethical violations, crimes, fails alcohol or drug tests, etc.," Perli said. "I'm pretty sure Powell didn't do anything of the sort." What is less clear, though, is whether Trump could remove Powell from the role of Fed chairman while leaving him as a board member, he said. "The law, as best as I can tell, is silent on that point." Troubles in Washington have escalated in recent days with a partial government shutdown that began on Saturday following an impasse in Congress over funds for a wall on the border with Mexico. Defense Secretary Jim Mattis' resignation on Thursday after Trump's surprise decision to pull U.S. troops out of Syria also unsettled investors.
But Mnuchin's response to the market concerns - calling bank executives and convening the Plunge Protection team - was seen as an overreaction in Wall Street circles. "It seems unexpected, abrupt and unnecessary," said Michael Purves, chief global strategist At Weeden & Co in Greenwich, Connecticut.
"We are dealing with one of the more respected parts of the administration from a Wall Street point of view. The guy who has been quietly in the background, relatively scandal-free and all that, a person who represents some sort of continuity and stability, doing something that looks like he doesn't know what he is doing," Purves said of Mnuchin. "For him to be organizing a call over the weekend like that as if we were in 2008, it just seems off."
The Working Group dates to March 1988 when Washington was still trying to figure out what was behind the "Black Monday" stock market crash of October 1987.
The team was also convened during the 2007-09 financial crisis.
Powell is a member of the Working Group, as are the heads of the Securities and Exchange Commission and the Commodity Futures Trading Commission.
(Reporting by Jason Lange; Additional reporting by Dan Burns, Richard Leong, Karen Brettell and Saqib Ahmed in New York and Pete Schroeder in Washington; Editing by Alistair Bell and Jonathan Oatis)