Steven Mnuchin, the former Treasury Secretary, addressed the current downturn in the stock market in a Bloomberg interview Thursday, suggesting that a correction of 5% to 10% for the S&P 500 and the Nasdaq is reasonable given the fully priced market upon his team’s arrival. This commentary comes as the S&P 500 Index faces a continued selloff, potentially leading to its lowest close since September. Mnuchin’s observations were made during an interview where he also discussed the impact of President Donald Trump’s trade policies, including the recent threat of imposing a 200% tariff on European alcoholic beverages.

Mnuchin, now at Liberty Strategic Capital, his own firm, pointed to the significant tech spending, especially in AI, as a factor in the market’s performance, labeling the current situation as a "natural correction." He also acknowledged the market’s concerns about tariffs and their potential effects. Despite these issues, Mnuchin advised investors to avoid overreacting, expressing confidence that the US is not headed for a recession. He conceded that there might be a slowdown due to a reduction in government spending but dismissed fears of a recession.

In addition to market movements, Mnuchin emphasized the urgency of addressing the substantial US fiscal deficit. He urged Republicans, who are considering an extension of Trump’s 2017 tax cuts, to include measures that would mitigate the effect on the nation’s borrowing. Mnuchin stressed the importance of extending the tax reductions but also recognized that circumstances have changed since 2017. With a larger budget deficit and higher interest rates, he acknowledged that managing the deficit is more challenging today, emphasizing the need for some tax cuts to be financed to avoid exacerbating the problem.

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