Illustration: Sarah Grillo/Axios
The "tweet" button on President Trump's iPhone is moving markets and has become increasingly consequential for trillions of dollars of assets around the globe.
Why it matters: The markets don't trust Trump — nor his Treasury secretary, Steven Mnuchin — to be a calming influence in times of stress.
- Quite the opposite: They now expect Trump to be an unsettling influence even when things are otherwise quiet. And they're worried that even the Fed is falling under Trump's spell.
What they're saying: A new paper from the National Bureau of Economic Research finds that whenever Trump tweets about interest rates, the market prices in a little bit more of a future rate cut.
Market participants believe that the Fed will succumb to the political pressure from the President.— Francesco Bianchi, Howard Kung, and Thilo Kind, NBER
JP Morgan's Volfefe index demonstrates that Trump's tweets have also increased volatility in the futures market more broadly.
My thought bubble: The markets normally look to the U.S. Treasury secretary for reassurance during difficult times, but as WaPo's Tory Newmyer says, Mnuchin is "Trump's most loyal surrogate." When Mnuchin weighs in on issues like Trump's conversations with Ukrainian president Volodymyr Zelensky, that damages his credibility more broadly.
- Trump's fiscal policy is also adding to market volatility. The Trump tax cuts have caused trillion-dollar deficits, which means the government has a huge and constant thirst for free cash. That in turn exacerbates liquidity shortages like the one we saw last week.
The bottom line: The stock market has done a pretty good job of shrugging off Trump's tweets, most of the time. But money markets — the places where businesses keep most of their cash — are much more important for a smooth-functioning economy than the stock market is. And they're showing increasing signs of concern.