With global stocks locked in their most extreme bout of volatility in at least eight months, and with the situation rapidly deteriorating as US stocks looked set to drop at the open on Thursday, Treasury Secretary Steven Mnuchin is probably finding it difficult to enjoy the beaches and sights of Bali during this week's IMF/World Bank conclave. And after watching in amusement as President Trump brutally scapegoated Fed Chairman Jerome Powell for the selloff, Mnuchin convened a group of reporters from Bloomberg and a handful of other media organizations early Thursday to assure global investors (and, more importantly, the president) that this bout of turbulence is merely a "temporary correction."
While Trump laid the blame for the selloff squarely at the feet of the "loco" Fed Powell, Mnuchin cautioned that economic "fundamentals" in the US remain strong and a "correction" in stocks isn't "particularly surprising."
"The fundamentals of the US economy continue to be extremely strong, I think that's why the 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," Mnuchin said.
Instead of blaming the Fed for the selloff, it would be better to frame it as a "normal correction," per CNN. Because, after all, "markets aren't efficient" and sometimes overreact - even when everything is fine.
"I don't think there was any new news that came out of the Fed today that wasn't there beforehand," Mnuchin said Thursday morning in an interview in Bali, Indonesia. He was speaking hours after the Dow and other major US indexes plunged more than 3%.
"Markets are not efficient and markets move in both directions and at times they overshoot in both directions...Markets go up. Markets go down," Mnuchin said on the sidelines of a meeting of global finance chiefs and central bankers hosted by the International Monetary Fund. "I see this as a normal correction."
Mnuchin also rejected the idea that the intensifying US-China trade war has triggered the selloff, claiming that there has been no "new" news to provoke a market panic (though this ignores the possibility that the reality is finally setting in that the trade dispute could be much more disruptive and investors had hoped, and also Mnuchin's own hints that the trade war could soon metastasize into a currency war).
"Nothing has changed on the trade side in the last 48 hours," he said.
Yet, while US and Chinese officials have insisted that there wouldn't be any trade talks during this week's meeting in Bali, it appears Mnuchin met the head of the PBOC for a quick photo op.
Today I met with People’s Bank of China Governor Yi Gang. We discussed important economic issues. pic.twitter.com/V2ofjO4TTZ— Steven Mnuchin (@stevenmnuchin1) October 11, 2018
Christine Lagarde, who inspired a nervous shudder in markets last week when her IMF downgraded its global growth forecast, said investors shouldn't read too much into the selloff, saying "there are ups and downs, and I think it’s fair to observe that the U.S. equity markets and stock markets in general have been extremely high." However, she added, if anything was responsible for the selloff, it was tightening monetary policy (AND protectionism, of course) was responsible for the selloff (this isn't what Powell wants to hear, we imagine).
Expect more of this jawboning from Mnuchin, because if the selloff continues, an aggravated Trump will almost certainly demand a scapegoat's head. Right now, that scapegoat looks to be Powell:
Another 2% down in spoos and Powell can start putting his coffee cups and pencils in a cardboard box— Not Jim Cramer (@Not_Jim_Cramer) October 10, 2018
Still, Trump's famously mercurial moods mean that the object of his wrath could easily shift.