U.S. stocks plunged Wednesday on fears of a recession, as President Trump and his advisers blamed the Federal Reserve for not cutting interest rates fast enough.
The slide began early Wednesday when the yield on the benchmark 10-year Treasury note dropped to 1.623%, below the two-year bond rate, which is typically an indication that investors are preparing for an economic slowdown. It was the first time such an “inversion” has occurred since 2007 and the fifth time since 1978. Each inversion was followed by a recession within two years.
The Dow Jones Industrial Average fell 800 points, or 3.05%, the fourth-largest drop on record, to close at 25,479. The tech-heavy Nasdaq and the S&P 500 indexes also fell about 3%.
The yield on the 30-year Treasury note fell to a record low.
The market losses wiped out Tuesday’s gains that had been forged on the Trump administration’s announcement that it would delay 10% tariffs on certain Chinese goods to prevent any harm to the holiday shopping season.
Many financial analysts blamed trade tensions over Mr. Trump’s tariff war with Beijing, as well as weak economic performances from Germany and China.
“We still see a substantial risk that the trade dispute will escalate further,” said Mark Haefele, global chief investment officer at investment bank UBS in a note to clients.
The president and his top advisers blamed the Fed and “clueless” Chairman Jerome Powell for raising interest rates four times last year and cutting rates only by one-quarter percentage point last month.
“China is not our problem, though Hong Kong is not helping,” Mr. Trump tweeted, referring to civil unrest in the special administrative region. “Our problem is with the Fed. Raised too much & too fast. Now too slow to cut.”
The president said the “spread” of interest rates between the U.S. and its competitors “is way too much as other countries say THANK YOU to clueless Jay Powell and the Federal Reserve. Germany, and many others, are playing the game!”
The prospect of a recession would throw into doubt one of Mr. Trump’s top arguments for reelection next year.
“CRAZY INVERTED YIELD CURVE!” Mr. Trump tweeted from his golf resort in Bedminster, New Jersey. “We should easily be reaping big Rewards & Gains, but the Fed is holding us back. We will Win!”
White House trade adviser Peter Navarro said the central bank should lower rates by at least three-quarters of a percentage point by the end of this year.
“This is basically the Federal Reserve’s problem: volatility,” Mr. Navarro said on Fox News. “They are causing this because when Jay Powell got in as chairman, he proceeded to raise interest rates by 100 basis points, too far too fast. And even though the Trump economy is rock solid, it slowed us down a bit because of those higher interest rates.”
The Fed cut its key interest rate last month by a quarter point to a target range of 2% to 2.25%, its first rate cut since the 2008 recession. The central bank’s board of governors is not scheduled to meet again until mid-September.
Mr. Navarro said the market swings are “good news, in the sense it gives the Federal Reserve even more reason to immediately lower interest rates by 50 basis points and another 25 or 50 before the holidays.”
“This is what everybody on Wall Street, except the Fed, believes should be happening now,” he said. “The underlying fundamentals of the U.S. economy are solid as a rock. All we need to do is get the Fed basically to get the right interest rate policy.”
Investors have pointed to other concerns, such as a second-quarter slowdown in gross domestic product to an annual rate of 2.1% and weak performances by department stores throughout the year. Macy’s reported Wednesday that its second-quarter earnings were well off targets, and it lowered its income expectations for the year.
Several other major economies, including Japan, Germany, Italy and the United Kingdom, appear to be heading toward recessions, and China is growing at its slowest pace in three decades.
Former Fed Chair Janet Yellen said the markets could be wrong in anticipating a recession because of the yield curve inversion.
“Historically, it has been a pretty good signal of recession, and I think that’s when markets pay attention to it, but I would really urge that on this occasion it may be a less good signal,” she said on Fox Business Network. “There are a number of factors other than market expectations about the future path of interest rates that are pushing down long-term yields.”
Shortly before U.S. markets closed Wednesday, Vice President Mike Pence said in a Twitter post that the economy “is growing & jobs are soaring.” He is scheduled to speak Monday to the Detroit Economic Club about the Trump administration’s economic agenda.
• This article is based in part on wire service reports.
• Dave Boyer can be reached at dboyer@washingtontimes.com.
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