Treasury Secretary Steven Mnuchin left many Wall Street insiders scratching their heads Sunday after he made a series of unusual phone calls that led to a weird statement about how the nation’s six largest banks have more than enough credit to extend to businesses and households. That could be seen as a bland vote of confidence in an economy after the worst selloff for U.S. markets in a decade. But the problem is that no one can quite figure out why “Mnuchin answered a question that no one seemed to be asking,” as Bloomberg puts it. Liquidity was not seen as a problem in the economy now and some wondered whether the phone calls signaled that it in fact could become a problem in the near future.
Mnuchin posted a statement on Twitter Sunday saying that he had called the leaders of the nation’s six largest banks and they told him “they have ample liquidity available for lending to consumer, business markets, and all other market operations.” The Treasury secretary also said he would convene a call with the President’s Working Group on Financial Markets, which is sometimes referred to as the “Plunge Protection Team.” Coming at a time when the federal government is partially shut down with no end in sight, some wondered whether the moves signaled there is a deeper problem in the market than analysts had realized.
“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,” Nathan Thooft, Manulife Asset Management’s head of global asset allocation, said. Considering how much psychology plays into the market, many were less diplomatic and said they couldn’t believe the news. “If this weren’t the end of December, I would have thought it was April Fools,” Jared Bernstein, former chief economist to Vice President Joe Biden, said. “It’s like sending out a message saying our space shields can intercept incoming asteroids. Uh, I didn’t know there were any coming our way.”
Mnuchin’s eyebrow-raising statement came a day after he tried to pour cold water on reports that President Donald Trump had discussed the possibility of firing Federal Reserve Chairman Jerome Powell. Seemingly aware that the mere talk of firing the Fed chief could rattle the markets, Mick Mulvaney, the incoming acting White House chief of staff, also dismissed the suggestion that Trump was getting ready to fire Powell. But he did imply that the president had at least asked about it. Trump “now realizes he does not have the authority to fire” Powell, Mulvaney said