Study Shows Trump's Tweets Effect the Market at a .3 Basis Points Per Tweet

Matty-Sways

A new study reveals traders believe the Federal Reserve will crumple under pressure from the White House and lower rates

Trump use of Twitter is well known, but a review of such tweets and the market response by economists show his lashings of the Fed and Chairman Jerome Powell have a real effect. A study conducted by Duke University and the London Business School found they have a “statistically significant and negative effect” on markets.

Just last week, the president accused the Fed of having “No ‘guts,’ no sense, no vision!”

Trump also recently asked whether Powell or China’s president, Xi Jinping, was “our bigger enemy.”

In August he tweeted the Fed board “puts us at a disadvantage against our competition.” regarding the negative interest rates in Germany.

Additional, he tweeted “Where did I find this guy Jerome?” despite being the one to nominate him.

The twitter burns knocked a combined 10 basis points off the expected fed funds futures contract, the equivalent to about 0.30 basis points per Tweet, the study found.

“We provide evidence that market participants believe that the Fed will succumb to the political pressure from the President, which poses a significant threat to central bank independence,” Francesco Bianchi, Thilo Kind and Howard Kung published in a study release Monday by the National Bureau of Economic Research.

This study is extremely interesting because it quantifies the effect of the President's power of social media despite the Fed consistently saying Trump’s lobbying isn't taken into account when setting monetary policy and that they act independently of politics.

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Economics, Finance and Investing

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