Trump blasts Fed 'incompetence' as trade war wobbles stock markets again

Donald Trump lashed out at the U.S. central bank on Wednesday, accusing the Federal Reserve's interest rate policy with holding back the economy from winning a trade war he is trying to wage with China.

In a series of tweets on Wednesday, U.S. President Donald Trump blamed the central bank for not initiating interest rate cuts that are "bigger and faster" for the current turmoil in financialmarkets.

Investors have been keeping a close eye on international trade developments in recent days, as the U.S. president escalates his trade war with China.

Markets had their worst day of the year on Monday after China allowed its currency to depreciate against the U.S. dollar, something that prompted the U.S. government to angrily call Beijing a "currency manipulator." The mood on stock markets was a bit better on Tuesday as Beijing solidified the exchange rate a little, but it doesn't take much of late to spark a big swoon or run up in stock prices.

Trump's view is that China employs a number of trade policies that are unfair to the U.S., including stealing technology, keeping their own market closed off to foreign firms, and keeping their currency artificially low to make Chinese suppliers look cheaper.

• Trump puts pressure on Fed to lower interest rates

His tactics to rectify that have includedslapping billions of dollars of tariffs on Chinese importsand threatening even more extreme measures, but on Wednesday he blamed the Federal Reserve's interest rate policy for holding the U.S. economy back.

"Our problem is a Federal Reserve that is too proud to admit their mistake of acting too fast and tightening too much (and that I was right!). They must Cut Rates bigger and faster, and stop their ridiculous quantitative tightening NOW," he said.

The Fed slashed its interest rate last week for the first time in more than a decade, and Trump wants that trend to continue so the U.S. economy will be supercharged by cheap access to money. Investors are now assuming another rate cut next month, followed by two more after that.

"There is almost a paranoia amongst central bankers to avoid any potential financial hiccups that might hurt the real economy and cause a slowdown," Jefferies strategist Sean Darby wrote in a report.

The war of words between Trump, China and now his own central bank has left investors reeling, with huge gains and declines."(Markets) are moving lower on global growth concerns," said Mike Loewengart, vice president, investment strategy, at E*TRADE Financial Corp. "And coming into question is the broader fundamental strength of economies around the world."

The Dow Jones Industrial Average plunged on Monday before recovering a little on Tuesday, and then seesawing on Trump's Fed fight on Wednesday. At one point on Wednesday the Dow was down by more than 580 points but ended up closing only down 22 pointsat 26,007. The broader S&P 500 also sank and then recovered.

In Toronto, the S&P/TSX composite index broke a six-day losing streak and closed up 115 points or almost one per cent to 16,265.