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Trump is bullying the Federal Reserve — here's why the stock market cares

Brian Sozzi

Investors should probably wake up each day hoping President Donald Trump rips the Federal Reserve and Chair Jerome Powell a new one (again).

That’s because stocks seem to react favorably when Trump pushes the Fed around in an effort to get the governing body to slash interest rates to create a pre-2020 re-election bid economic boom. Consider this: as the president has increasingly took to Twitter since May to complain about Fed policy, the major stock indices have reclaimed their record highs.

The pushback to new highs can be linked to a late spring dovish turn — on FOMC decision days and in numerous press events — by Powell and his buddies at the Fed.

Of course the Fed has downplayed the notion that it’s being smacked around by Trump, reiterating on numerous occasions its independence of politics. But the stock market doesn’t see it that way, plain and simple.

“The president wants to get his way, and he will jawbone people, markets and countries to the point of almost bullying them,” markets insider Keith Bliss of Cuttone Securities said on Yahoo Finance’s The First Trade. “The market is reading this as Jerome Powell and the Fed are reading the tweets. The market thinks the Fed is making its moves based upon what the president is saying to the Fed.”

Bliss said he doesn’t believe that to be the case, but the market will view it that way regardless.

And the president — a well-known stock market watcher — likely knows just that. So why not keep the tweet stream hot and pressure the Fed, as he did with more biting criticism on Monday.

Bliss doesn’t think the Fed is out to lunch.

“I think the Fed and Jerome Powell really know what they are doing — they do have their hand on the pulse probably more than than the president does or anybody in the White House, except for maybe Larry Kudlow. I think they are trying to engineer a real nice sweet spot for interest rates,” Bliss explained.

Perhaps Bliss is right in that yes, the Fed knows what it’s doing. Mr. Market can care less though — it’s clearly thinking the Fed is clueless. Meanwhile, Trump stays on the attack.

Brian Sozzi is an editor-at-large and co-host of ‘The First Trade’ at Yahoo Finance. Follow Brian Sozzi him on Twitter @BrianSozzi

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