Trump, GOP policies working despite market sell-off worries, Rep. Hensarling says

Published February 04, 2018
FOXBusiness

Despite a major market selloff last Friday, Rep. Jeb Hensarling said Sunday he believes the economy is still progressing with strength, with the Trump administration’s policies paving the way for continued economic growth.

“The Tax Cut and Jobs Act is working, regulatory reform is working and I think the economy will be very strong,” Hensarling, R-Texas, told Maria Bartiromo on “Sunday Morning Futures.”

U.S. markets saw their biggest weekly losses in two years on Friday with the Dow Jones industrial average dropping nearly 666 points, its largest percentage loss in 20 months and biggest daily point decline since December 2008 during the financial crisis.

“A strong jobs report, evidence of faster wage growth, and a spike in long-term bond yields are behind this week’s sell-off,” Greg McBride, Bankrate.com’s chief financial analyst, told FOX Business. “But those are all good economic fundamentals, so while there's no telling if the market will continue to correct or not, it is a good buying opportunity.”

In its latest employment report, the Bureau of Labor Statistics (BLS) said nonfarm payrolls rose by 200,000 in January with the unemployment rate holding at 4.1%, beating analysts’ expectations of 180,000. However, stronger-than-expected wage growth data—wages grew 2.9% in January, the biggest yearly gain in more than 8.5 years, was a driving factor behind the tumble in U.S. equities markets.

Furthermore, investors worry the U.S. Federal Reserve will have to raise interest rates faster than originally expected, because of the sharp increase in wages, in-turn causing the 10-year Treasury yield to rise to 2.85%, the highest since January 2014.

Hensarling, who chairs the House Financial Services Committee and believes wages do need to rise, put the onus on the Fed, citing the U.S. central banking system’s “huge, bloated balance sheet.”

“Anytime we finally had a strong economy we were gonna have to deal with higher interest rates and the Fed was gonna have to manage a tough problem … And I believe and hope that this Fed will be up to the challenge again to unwind something that the previous Fed really put together,” he said.

Increasing bond yields also impact those looking to purchase a home, as mortgage rates typically follow the same path. Currently, the average 30-year fixed rate is 4.22%, according to the latest data from Freddie Mac, though for some lenders can be even higher.

“The run-up in bond yields is consistent with the economic data and prospects of both higher inflation and higher interest rates," McBride said. "This is pushing mortgage rates up, which will hurt buyers’ affordability but won’t dampen home buying activity for very long. After all, it’s a solid job and rising income that get people to buy houses, and they’ll do that whether mortgage rates are 4% or 4.5%.”