Trump Warns of Stock Market Crash When Interest Rates Rise

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September 27, 2016 6:56am INDEXDJX:.DJI NYSE:DIA

During last night’s highly-anticipated first presidential debate, Republican nominee Donald Trump didn’t pull any punches when discussing the American economy and stock market.


Trump said that since the financial crisis, we’ve seen “the worst revival of an economy since the Great Depression.” That’s because the recovery has been fueled by zero percent interest rates and massive debt, he noted.

And with rates artificially depressed, the markets could be in for a massive shock.

“When they raise interest rates, you’re going to see some very bad things happen, because they’re not doing their job,” said Trump, referring to recent Federal Reserve policy. The markets are “in a big, fat, ugly bubble,” he added, where “the only thing that looks good is the stock market.”

Trump also reiterated his view that the Fed is keeping interest rates low prior to the November election so that the economy looks better and purportedly aid the Democrats’ cause. Once Obama “goes out to the golf course,” the Fed will hike rates, Trump said.

Since the Fed is made up of political appointees, and the president has the power to hire and fire members, it’s natural for market watchers to assume they have political motivations. Fed chair Janet Yellen defended her policies in a recent speech, however, noting “I can say, emphatically, that partisan politics plays no role in our decisions about the appropriate stance of monetary policy.”

But Trump isn’t buying it. “We have a Fed that’s doing political thing — this Janet Yellen of the Fed — by keeping interest rates at this level,” he said.

Democratic nominee Hillary Clinton didn’t address Trump’s claims about the Fed or stock market. She’s said in the past that she doesn’t think it’s appropriate for candidates to talk about Federal Reserve policy. “You should not be commenting on Fed actions when you are either running for president or you are president,” Clinton said aboard her campaign plane earlier this month. “Words have consequences. Words move markets. Words can be misinterpreted.”

DIA-2016-09-27

Investors will have to wait and see if Trump’s words do carry the weight to move the markets today. The SPDR Dow Jones Industrial Average ETF (NYSE:DIA), which closed down $1.67 (-0.92%) to $180.75 per share on Monday, was unchanged in premarket trading Tuesday.

The only ETF that tracks the benchmark Dow Jones Industrial Average has gained 3.89% year-to-date.


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