Tags: Financial Markets | Money | Trump Administration | steven mnuchin | stock market | bear market | treasury

Mnuchin Risks Being Trump's Target Amid Market Losses

treasury secretary steven mnuchin speaks behind a mic and in front of the american flag
Treasury Secretary Steven Mnuchin (Thomas Kienzle/Getty Images)

Monday, 24 December 2018 09:23 PM

Steven Mnuchin is struggling to contain his first real crisis as Treasury secretary, failing to assuage investors unnerved by turmoil in Washington and making him a target of President Donald Trump's wrath over stock market losses.

An emergency meeting with top U.S. regulators Mnuchin convened Monday and a call with executives from six major banks the previous day failed to address concerns about the administration that have intensified in the wake of a Bloomberg News report Trump had discussed firing Federal Reserve Chairman Jerome Powell.

Trump's frustration with Powell over the market's performance – expressed in tweets and interviews – now might turn to his Treasury chief. One person familiar with the president's thinking says Trump has weighed dismissing Mnuchin, while another said Mnuchin's tenure might depend in part on how much markets continue to drop.

Since taking office, Trump has looked to the stock market as a benchmark for his presidency. Yet much of the gains in equities since his election have been been erased by months of turmoil, as investors grow increasingly concerned about the impact of the administration's trade battles with China and Europe.

After Mnuchin's call, which produced no public statement, stocks continued their Christmas Eve slide, ending the day with the benchmark S&P 500 down 2.7 percent, hitting its lowest level in 20 months. The president will continue looking for a scapegoat. Now that he has acknowledged he cannot fire Powell, Trump's target could become Mnuchin.

"There are plenty of people inside the White House who are not fans of Mnuchin who are happy to throw him under the bus," said Stephen Myrow, managing partner at Beacon Policy Advisors in Washington and a former Treasury official. "Up 'til now, he's been protected by the fact that Trump liked him and he's been a loyalist."

A Treasury Department spokesman referred a request for comment to the White House, which did not respond.

Powell Contacts

In a sign Trump might have lost some faith in Mnuchin, the president has asked whether one or more of his advisers could meet with Powell, according to a person familiar with the matter. That would be seen as undermining the authority of the Treasury chief, who sees Powell for lunch once a week and is normally the official designated to deliver the administration's views.

Investors have many reasons to worry. Trump's trade war with China is creating uncertainty for businesses. U.S. government debt is approaching $22 trillion. A partial government shutdown this week is raising concerns about Washington's ability to find bipartisan solutions to pressing problems. The president's musings about firing Powell and the abrupt departure of Defense Secretary James Mattis add to the sense of turbulence.

While Trump regularly took credit for the stock market's rise, he has consistently pointed elsewhere to explain its decline.

Going Way Back

Unlike others Trump has cut loose, the president goes way back with Mnuchin, 56, a former Goldman Sachs Group Inc. partner and movie financier who served as Trump's chief campaign fundraiser.

But Mnuchin's standing with Trump might be undermined by moves that risk his reputation on Wall Street, a Treasury secretary's stock in trade.

Last week in an interview with Bloomberg News, Mnuchin pointed to long-standing phenomena to explain the stock market's recently volatility. He cited five-year-old restrictions on banks using their own capital to make speculative market bets, known as the Volcker Rule. He also mentioned high-frequency trading, an industry practice that has been common for more than a decade.

Mnuchin announced Sunday he had called the six largest U.S. banks and was reassured they have "ample liquidity available for lending."

"I don't know anybody who thought before last night that banks were suffering from lack of liquidity (i.e., a situation like the financial crisis)," Roberto Perli, a partner with Cornerstone Macro LLC, wrote in an analysis Monday. "Even the Fed and other agencies are very satisfied with the health of the banking system, to the point of relaxing a bit the regulatory grip."

'Desperation, Nervousness'

The move "smacks of desperation and nervousness," said Paresh Upadhyaya, a portfolio manager at Amundi Pioneer Asset Management in Boston.

Then on Monday, Mnuchin held the hastily organized call with the president's Working Group, a roster of top U.S. financial regulators, who assured him they are seeing nothing out of the ordinary in markets. Holding what seemed like an emergency discussion with financial regulators on a day when markets closed early for the Christmas holiday might have only added to investor anxiety.

Mnuchin did not clear either move in advance with Trump, according to an administration official, who said the Treasury secretary acted under his normal authority.

Publicly, the president lashed out Monday at the Federal Reserve as "the only problem our economy has" because it keeps raising interest rates.

Sending Tweets

Over the weekend, Mnuchin sought to reassure financial markets Powell's job is safe after the report Friday that Trump had consulted advisers many times in the previous few days about firing Powell. Mnuchin tweeted Trump told him he did not he even have the authority to remove the central bank chief, a message that an administration official confirmed the president had authorized.

With the government partially shut down and Trump's holiday trip to Mar-a-Lago called off, the president has kept busy at the White House on Twitter, parceling out praise for Acting Attorney General Matthew Whitaker ("for whom I have great respect") and condemnation for the Fed ("like a powerful golfer who can't score because he has no touch – he can't putt!")

Mnuchin might want to watch that space for any assessment by Trump of his recent performance.

© Copyright 2020 Bloomberg News. All rights reserved.

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Failing to assuage investors unnerved by turmoil in Washington, Steven Mnuchin is struggling to contain his first real crisis as Treasury secretary and potentially making him a target of President Donald Trump's wrath over stock market losses.
steven mnuchin, stock market, bear market, treasury, secretary
Monday, 24 December 2018 09:23 PM
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