Mnuchin Bid to Calm Markets Risks Making Bad Situation Worse

Treasury Secretary Steven Mnuchin looked to quash big-bank worries over plunging stock markets and reports that President Donald Trump might move on his Federal Reserve chief by assuring the financial community on Sunday that market liquidity is in good shape.

Some market participants, however, questioned why Mnuchin answered a question that no one was asking. Even after recent market losses, a liquidity squeeze or fresh financial crisis hadn’t been on the market’s mind. Mnuchin’s assertion of ample liquidity risked raising doubts.

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Mnuchin tweeted late Sunday afternoon that he’d called the chief executive officers of the nation’s six largest banks and that those chiefs “confirmed they have ample liquidity available for lending to consumer, business markets, and all other market operations.” Treasury also said Mnuchin would convene a call on Monday with the President’s Working Group on financial markets.

Bigger Issue?

Even with U.S. stock markets on the skids for weeks, and the federal government in a partial shutdown since Saturday, many market-watchers wondered whether there’s something more systemic going on.

“My initial instinct is this isn’t necessarily a positive thing, because it portrays that there’s worries that there is a bigger, broader issue than what I think is just typical re-positioning toward the end of the year,” said Nathan Thooft, Manulife Asset Management’s head of global asset allocation.

“When you see it and investors look at it, I don’t think they’re going to view it as, ‘Oh, this is the saving grace of what’s going to cause the catalyst to turn markets around,”’ he said.

Mnuchin’s phone calls — and announcement of a Monday meeting — capped a chaotic three days that started with another 2% lopped off the S&P 500 index and got a jolt from a Bloomberg News report that Trump was discussing firing Federal Reserve Chairman Jerome Powell.

The Treasury secretary moved to tamp down concerns that Trump would oust Powell. But it’s also clear that Trump is still concerned about the Fed chair.

Trump is trying to arrange for at least one intermediary to meet with Powell amid his anger over the central bank’s interest-rate increases, said a person familiar with the matter.

‘Isn’t Helping’

Mnuchin had issued a statement by Twitter Saturday evening quoting the president as saying he wouldn’t fire Powell and disavowing authority to do so, which in itself raised eyebrows. Why, people wondered, did Mnuchin and not Trump — never shy with a tweet — make the statement.

“Mnuchin isn’t helping,” said Mayra Rodriguez Valladares, a former foreign-exchange analyst for the Federal Reserve Bank of New York. “For him to come out and explain what Trump is expressing is bizarre. It adds to the nervousness.”