Market turmoil threatens Obama’s economic success

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The U.S. economy is finally chugging along, but a resurgent recovery is bringing its own set of challenges that could complicate the president’s record on an issue that has dominated his time in office.

A set of looming matters, both within and far outside of Washington’s control, will play a huge role in financial markets and the broader economy in the coming months. How those events play out could go a long way in scoring President Obama’s overall economic record, just as Americans are finally beginning to feel a recovery take hold.

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While noting that challenges remain, the White House has touted the economic comeback under Obama’s watch. And polling shows that, while wage gains may still be slow, the glut of good news around the overall economy is boosting optimism for where the U.S. is headed. Economic confidence, according to Gallup, is near its highest level since the financial crisis, though still slightly negative.

As the U.S. begins to outpace more troubled global counterparts, the dollar has strengthened and inflation has remained in check. Meanwhile, decisions at the Federal Reserve loom large over all financial market moves, which have grown volatile in recent days.

“I think there is a substantial amount of financial market volatility dead ahead,” said Mark Zandi, chief economist with Moody’s Analytics.

On Tuesday, Obama’s top economic adviser laid out a set of concerns for the U.S. economy going forward. Jason FurmanJason FurmanTrump gets good news on wages On The Money: Trump waves off political risk from shutdown | Senate GOP, Dems get deal on major spending bill | Regulator to offer banking charters to financial tech firms | What to know from day one of Manafort trial American prosperity of Trump era marks real turning point in history MORE, chairman of the Council of Economic Advisers, said a stronger dollar, combined with weakening economic activity abroad, is weighing on U.S. exports.

So far, U.S. domestic activity has picked up the slack, but “the global slowdown represents a risk,” he said.

Under Obama’s watch, the stock market has posted a remarkable comeback from the lows of the financial crisis. All three major indexes regularly flirt with new all-time highs, and minimal fiscal drama from Washington in recent years has done little to weigh on them.

But a new congressional makeup could set the stage for fresh fiscal fights, as lawmakers prepare to pass a budget soon. And looming over the horizon is another debate over raising the debt ceiling, likely necessary sometime in the summer or fall.

Furman said it was “essential” that policymakers avoid “manufactured fiscal crises and harmful austerity” in the days ahead.

But even if policymakers skirt disaster on the legislative front, another big factor is definitely coming: the Federal Reserve’s first rate hike since the end of 2008. After years of unprecedented — and controversial — support, the central bank is preparing to boost rates from near-zero levels in the next several months. How markets adjust is a big question.

“We can blame the Greeks. We can blame a scandal in Washington,” said Axel Merk, president of Merk Investments, “but ultimately it is the Fed that drives this.”

After years of low interest rates helping push the market sky-high, traders may be viewing good news about the economy as bad news for the stock market. On Friday, the Labor Department reported that the unemployment rate had hit its lowest level in nearly seven years. The latest jobs report showed the economy has added 200,000 jobs each month for the last year, and beat expectations by adding 295,000 jobs in February.

How did the market respond? By suffering one of its biggest declines of the year.

The Dow Jones industrial average fell 278 points on Friday, as many read the surprisingly strong report as a sign the Fed could raise rates. The Dow is down 427 points since that report came out.

The central bank is set to meet next week to again update its policies, and there are signs the Fed is considering moving more quickly on interest rates. The Wall Street Journal reported Tuesday the central bank is “strongly considering” dropping language regarding its “patient” approach to raising rates, clearing the way for a rate hike potentially as early as this summer.

The Fed has been adamant that it is weighing a wealth of economic data in making its policy decisions. And to help prepare for the upcoming transition, the Fed has offered more guidance than ever, holding press conferences and providing detailed statements in an effort to smooth out any market disruption it could cause.

But Republican skeptics have long maintained the Fed would have trouble unwinding from its massive stimulus effort without upending the economy — and that theory will be put to the test shortly.

“This heightened financial market volatility will not derail the economic expansion,” said Zandi. “All of this is very typical of what has happened historically at this point of the business cycle.  And in all cases, the economic expansion continued .”

But if market turmoil ensues, it may draw headlines even if many Americans do not sour on the broader economy. A surging stock market did little to boost Americans’ outlook, so rocky times on Wall Street might not mean much either.

Many Americans have no skin in the stock market. Fed data from September found that just 13.8 percent of Americans own any sort of stocks. The most common way Americans interact with financial markets is through their 401(k) plans, but even those are not particularly common — just 49.2 percent of Americans reported retirement accounts to the Fed.

Monday’s poll from NBC and The Wall Street Journal showed public approval for Obama’s handling of the economy nearly even, with 47 percent approving and 48 percent disapproving. That’s down slightly from the same question in January, but an improvement from recent history; Obama was well underwater on the economy in eight of the last 10 polls, dating back to March 2014.