This article is more than 1 year old

This article is more than 1 year old

Global investors are braced for more turbulence in 2019 after the White House intensified its criticism of the US’s most senior central banker.

Over the weekend, a flurry of reports claimed Donald Trump had discussed the possibility of firing the Federal Reserve chairman, Jerome Powell. Such an unprecedented move would trigger further instability in the markets, which have already had their worst year since the 2008 crisis.

US officials scrambled to deny Trump had suggested ousting Powell, who was appointed by the president barely a year ago.

The Treasury secretary, Steven Mnuchin, tweeted that he had spoken to the president, who insisted he “never suggested firing” Powell, and did not believe he had the right to do this.

However, Trump also declared – via Mnuchin – that he “totally disagrees” with the Fed’s “absolutely terrible” policy of raising interest rates and unwinding its bond-buying stimulus programme, piling further pressure on the US’s independent central bank.

Steven Mnuchin (@stevenmnuchin1) (1/2) I have spoken with the President @realDonaldTrump and he said “I totally disagree with Fed policy. I think the increasing of interest rates and the shrinking of the Fed portfolio is an absolute terrible thing to do at this time,...

Steven Mnuchin (@stevenmnuchin1) (2/2) especially in light of my major trade negotiations which are ongoing, but I never suggested firing Chairman Jay Powell, nor do I believe I have the right to do so.”

Trump’s attacks on the Fed intensified as the stock markets fell sharply in the autumn. Having taken credit for rising share prices in 2017, the president has been stung by the recent Wall Street sell-off, which has wiped more than 15% from the value of the biggest companies in the US.

Bloomberg reported that Trump’s frustrations with Powell have “intensified” since the Fed ignored his complaints by increasing borrowing costs last week, and indicated that two more rises are likely in 2019.

However, it is not clear whether Trump could dismiss Powell if he wanted – as Mnuchin’s tweet points out. A Fed governor can only be fired for “cause” – such as misconduct – rather than simply raising interest rates faster than the White House would like.

Stock markets fell after the Fed’s decision last week, as many investors ditched shares and piled into safe-haven assets such as US government debt.

John Hardy, the head of FX strategy at Saxo Bank, said: “The market seems to be telling us that the Fed is making a policy mistake that it will regret as it is eventually forced to reverse.”

Wall Street has endured its worst December since 1931. The Dow Jones industrial average has plunged by 12% since the start of the month, amid growing concern that the world economy is slowing.

Wall Street stocks suffer worst week in a decade Read more

The rout means about $7tn has been wiped from world stocks this year. MSCI’s all country world index, a broad measure of shares around the globe, has had its first double-digit loss in any year since the 2008 crisis.

Deutsche Bank has calculated that 93% of assets produced a negative total return this year, the worst performance on record.

The bank’s chief international economist, Torsten Slok, has drawn up a list of 30 potential threats to the market in 2019. It includes the risk that the US economy catches a cold from a slowdown in China and Europe, the US government shutdown, a disorderly Brexit and a deeper trade war.

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Last week, the UK’s FTSE 100 fell to its lowest level in 28 months. US stocks ended the week at a 14-month low, as the US government shutdown alarmed Wall Street.

Lukman Otunuga, a research analyst at FXTM, said the escalating row between Trump and Congress over funding for a wall on the Mexico border had created pain in the markets.

“It was a remarkably terrible trading week for financial markets amid concerns over rising US interest rates, decelerating global growth, Brexit uncertainty and chaos in Washington. With geopolitical risk factors weighing heavily on investor confidence, financial markets remain at risk of concluding 2018 on a risk-off tone,” Otunuga said.