President Donald Trump may get the Federal Reserve interest rate-hike pause he wants as his attacks on the Fed and the government shutdown roil stock markets and shave 2019 forecasts for economic growth.
The S&P 500 fell 2.7 percent on Christmas Eve, bringing U.S. stocks to the brink of a bear market after a drop of almost 20 percent from a September peak. Shares rallied Wednesday, snapping a four-day losing streak.
The latest drop came after Bloomberg News reported Dec. 21 that the president had discussed firing Fed Chairman Jerome Powell following the central bank’s Dec. 19 decision to lift interest rates for the fourth time this year.
Fed officials accompanied the hike with a signal they would likely slow the pace of increases in 2019. Still, they offered a strong economic forecast, penciling in 2.3 percent growth for next year, according to their median estimate. They also said they expect the jobless rate would average 3.5 percent in the final three months of next year. The forecast still justified two more rate increases in 2019, they said.
That outlook, however, is likely to be tempered by market volatility as falling stocks hurt consumption by reducing household wealth. Business confidence is damaged as volatility rises, the cost of capital increases, and uncertainty over government policies — be it a trade war or an assault on the Fed — forestalls investment.