Mnuchin tries to assure markets after shutdown roils Washington

Treasury Secretary Steven Mnuchin released a statement Sunday afternoon seeking to reassure financial markets after a weekend of negotiations failed to produce any path forward on a partial government shutdown. 

The statement also comes after media reports that President Trump has discussed firing Federal Reserve Chairman Jerome Powell out of frustration over rising interest rates.

“We continue to see strong economic growth in the U.S. economy with robust activity from consumers and business,” Mnuchin said in a statement released hours before markets are due to resume trading in the midst of the shutdown.

{mosads}“With the government shutdown, Treasury will have critical employees to maintain its core operations at Fiscal Services, IRS, and other critical functions within the department,” Mnuchin said.

More eye-opening, however, was an accompanying statement indicating that Treasury Department officials are worried about a potential liquidity freeze or chain-reaction or run on securities.

Treasury announced that Mnuchin convened a call with the nation’s six largest banks — Bank of America, Citi, Goldman Sachs, JP Morgan, Morgan Stanley and Wells Fargo — to sound out the possibility of a panic. 

The CEOs confirmed that they have ample liquidity available for lending to consumer, business markets, and all other market operations. He also confirmed that they have not experienced any clearance or margin issues and that the markets continue to function properly.

Mnuchin and acting White House chief of staff Mick Mulvaney have also tried to tamp down fears that Trump will oust Powell, which could send markets plunging even deeper in the red after their worst December performance since the Great Depression.

Mnuchin tweeted on Saturday that Trump denied that he ever suggested terminating Powell, who on Wednesday said the Fed would continue to reduce its purchase of U.S. treasuries and mortgage-backed securities. The Fed also signaled that it would raise interest rates two more times in 2019 after boosting it by a quarter of a percentage point in December to 2.5 percent.

Bloomberg News reported Saturday that experts warn the markets would “erupt” if Trump followed through on his reported threat.

Keith DeGreen, CEO of DeGreen Capital Management, told Bloomberg that such a move would “likely spur more selling.”

The Nasdaq composite index, which helped drive up markets during most of Trump’s first year in office, officially entered bear market territory this past week.

Republican senators have warned Trump not to remove Powell.

“I think some of the president’s comments have been unfortunate. But Chairman Powell is not going to let politics interfere with his decision-making process,” Sen. Pat Toomey (R-Pa.) told NBC’s “Meet the Press” on Sunday.

Former Senate Banking Committee Chairman Richard Shelby (R-Ala.) on Saturday warned Trump to be “very careful.”

Shelby said the Fed should remain independent from politics.