By Antony Currie and Richard Beales
(The opinions expressed are their own.)
NEW YORK/LONDON, Dec 24 ( Breakingviews) - Steven Mnuchin is crying wolf. The U.S. Treasury secretary on Sunday used the language of financial meltdowns to address rather more pedestrian issues: falling stocks, another government shutdown, and President Donald Trump's latest attack on the Federal Reserve. Rather than easing U.S. market worries, his alarmism adds to them.
Absent such a debacle, the chances are that most market players are going to see Mnuchin's pre-Christmas missive in one of three ways. It could be another attempt by the administration to shift any blame for recent market ructions - which include a 7 percent slide in the S&P 500 Index of U.S. stocks last week - away from Trump's policies, which aside from crimping international trade have brought another partial government shutdown over his demands for border-wall funding. The president himself has criticised Federal Reserve Chairman Jay Powell over the central bank's interest-rate hikes, although Mnuchin over the weekend attempted to show Trump dialling down his critique.
Alternatively, the Treasury secretary's intervention may be the action of someone trying to look relevant after being overshadowed by his boss and other economic-policy advisers in the administration. Or it could simply be a mix of poor counsel and his own inexperience. It doesn't help that Treasury's memo, among other typos, misspells the name of the Commodity Futures Trading Commission and was rushed out on Twitter.
These interpretations should help investors avoid overreacting, but they don't offer much comfort in the longer run. One danger is that money managers ignore the next warning from Mnuchin, even if it is better founded. Another is that, when the next crisis does arrive, there's no confidence in his ability to handle it.
- U.S. Treasury Secretary Steven Mnuchin called the chief executives of America's six largest banks on Dec. 23, he and the Treasury said in tweets on the same day. "The CEOs confirmed that they have ample liquidity available" to lend to people and businesses," the Treasury said in a statement attached to the tweets. They also told Mnuchin they had not experienced "any clearing or margin issues and that the markets continue to function properly".
- The six banks are Bank of America, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley and Wells Fargo.
- The statement also said Mnuchin intends on Dec. 24 to host a telephone meeting with the President's Working Group on Financial Markets, which includes representatives from the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission. He has also invited the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
- Mnuchin's calls to the bankers came amid a partial government shutdown that began on Dec. 22 following an impasse in Congress over President Donald Trump's demand for more funds for a wall on the border with Mexico.
- Also on Dec. 22, Mnuchin said on Twitter he had spoken to Trump about reports he was considering ousting Fed Chair Jerome Powell. He quoted Trump as saying, "I totally disagree with Fed policy… but I never suggested firing Chairman Jay Powell, nor do I believe I have the right to do so".
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