Treasury Secretary Mnuchin: Trump thinks the Fed should not hike rates when inflation is 'under control'

  • The U.S. economy is "incredibly positive," and markets tend to go too far in both directions, Mnuchin says.
  • Economic growth is "very strong" with inflation under control, he says.
  • This week's decline in stocks, the worst since late March, was fueled by concern the Fed might raise interest rates more than forecast.

Treasury Secretary Steven Mnuchin told CNBC on Friday this week's stock market plunge was a "natural correction."

"Markets tend to go too far in both directions," he said.

He also said the U.S. economic story is "incredibly positive" and inflation is under control.

"The fundamentals are still very strong," Mnuchin said in an interview with CNBC's Geoff Cutmore from Bali, Indonesia, where the International Monetary Fund and World Bank were holding their annual meetings.

"The U.S. economy is strong. U.S. earnings are strong. I see this as just a natural correction after the markets were up a lot."

There's really "no new information in the market" on inflation, interest rates or trade, he added in the interview, which aired on "Squawk Box."

Global finance leaders are trying to make sense of the U.S. stock market rout that took the Dow Jones Industrial Average down another 545 points on Thursday for a two-day plunge of nearly 1,400 points or more than 5.2 percent.

The S&P 500 and Nasdaq suffered similar percentage declines.

In premarket trading Friday, the indexes were pointing to solid gains at the open.

This week's decline in stocks, the worst since late March, was fueled by concern the Federal Reserve might raise interest rates more than forecast.

President Donald Trump has repeatedly slammed Fed Chairman Jerome Powell, saying the central bank is increasing rates too quickly and that stronger economic growth won't lead to problematic inflation.

The Fed has not been damaged by any comments by Trump, Mnuchin said. "The president has been clear, he likes low rates," the Treasury secretary added, stressing the White House respects the independence of the central bank.

"[Trump] doesn't feel that he has to attack at all," Mnuchin said. "The president is concerned about the Fed raising interest rates too much and slowing down the economy. And those are, obviously, natural concerns."

Mnuchin said Powell is doing a "good job" and "understands the regulatory environment" around the financial industry. "We took bank regulations too far in the other direction" since the 2008 financial crisis.

In 2018, the Fed increased rates in three 0.25 percentage point moves in March, June, and September to a range of 2 to 2.25 percent. Another hike is expected in December.

After their September meeting, central bankers were projected on a path to raise rates to 3.4 percent, before pausing.

The current knock on stocks and the spike in bond yields can be traced back to remarks last week from Powell about monetary policy being a "long way" from neutral.

The recent rise in bond yields is a reflection of a "normalization in the yield curve," Mnuchin told CNBC on Friday. It makes sense for that normalization to be happening "at the same time as a correction in the stock market," he said.

As far as global demand for American bonds, Mnuchin said he's not worried about China selling its stockpile of U.S. Treasurys in retaliation over trade. He said there's plenty of demand for U.S. government debt.

WATCH: Mnuchin says the Fed has not been damaged by any Trump comments

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