News & Politics

Administration Efforts to Calm the Markets Fail

Steven Mnuchin, President-elect Donald Trump's choice for Treasury Secretary, arrives at Trump Tower, in New York, Wednesday, Nov. 30, 2016. (AP Photo/Richard Drew)

Treasury Secretary Steven Mnuchin tried his best to reassure the markets over the last few days, but his efforts may have ratcheted up the worry of nervous investors rather than calm the jittery market.

The Atlantic’s Annie Lowrey explains:

Imagine having a runny nose, itchy eyes, congestion, and a sore throat, and your doctor telling you that you shouldn’t worry about cancer—she consulted her colleagues and they’re certain it is not cancer, and if it were, they could fight it.

This is roughly what happened on Sunday evening, when Treasury Secretary Steven Mnuchin put out a press release on calls he held with executives from the country’s largest banks. Mnuchin’s statement assured the public that they had not been having liquidity problems or “clearance or margin” issues—the sorts of things you would worry about if the country were on the brink of a financial crisis.

No such crisis is on the horizon, which begs the question: Why did Mnuchin feel it necessary to announce his phone call with the bankers? And why did he say he was calling a meeting of the so-called “Plunge Protection Team” of top U.S. financial regulators?

One possible explanation is that Mnuchin has been under enormous pressure from Trump to do something about the slumping stock market. His announcement on Sunday that he had a reassuring conversation with bankers as well as his planned meeting with regulators may have been aimed at the president, who is demanding action.

But does Mnuchin know something we don’t?

Option three: Mnuchin has some troubling insider knowledge, and he wanted to broadcast to the markets that he is aware and in charge. Maybe some financial firms are teetering? Maybe rising interest rates and falling asset prices are straining some important market participants, and it just has not yet become evident in public reports?

Whatever Mnuchin was trying to do, he did not succeed in it, instead stoking market fears and sowing confusion. Perhaps the clearest takeaway is that Mnuchin and Trump’s Treasury lacks the expertise to communicate clearly and forcefully with the markets—no surprise, given how few experienced financial operatives Trump has hired and how many experienced non-political civil servants have fled Treasury during this administration.

Whatever Mnuchin’s purpose, it failed. The stock market fell more than 650 points yesterday, the largest Christmas Eve drop in history. It seems obvious that the sell-off is being fueled more by the political chaos in Washington, rather than the small increases in interest rates engineered by the Fed.

Trump’s anti-Fed jawboning isn’t helping.

Nor have his attacks on Fed Chairman Jerome Powell done anything to calm the markets.

Perhaps investors will realize very soon that there is nothing wrong with the economy, that the jobs market continues to sizzle and inflation is still very low.

But first things first — find a solution to the budget crisis. That will probably help stop the bleeding.