Bring interest rates down to zero, or less: Trump to Federal Reserve

Washington, United StatesUpdated: Sep 11, 2019, 09:17 PM IST
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File photo of Donald Trump. Photograph:(Reuters)

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Investors overwhelmingly expect the Fed to deliver a 25-basis-point rate cut next week.

President Donald Trump wants US "interest rates down to zero, or less," he tweeted Wednesday amid widespread expectations that the Federal Reserve will cut rates later this month.

"We should then start to refinance our debt. Interest cost could be brought way down, while at the same time substantially lengthening the term," he added.

"It is only the naivete of Jay Powell and the Federal Reserve that doesn't allow us to do what other countries are already doing," he asserted.

"A once in a lifetime opportunity that we are missing because of 'Boneheads," Trump said, in perhaps his most insulting comment to date about the US central bank.

As it becomes increasingly apparent that the US economy has slowed in 2019, in large part because of concerns about Trump's trade war with China, Trump has publicly berated Fed Chair Jerome Powell and the independent Fed for failing to loosen monetary policy fast enough.

The "Federal Reserve should get our interest rates down to zero, or less," Trump said.

Investors overwhelmingly expect the Fed to deliver a 25-basis-point rate cut next week. But cutting to zero would be an extreme move reserved only for a severe economic crisis.

After raising the benchmark lending rate four times last year, to a range of 2.0-2.25 per cent, the central bank cut in July for the first time in more than a decade, partly as insurance against the impact of trade uncertainties on the economy.

Powell has vowed to act to ensure that American economic expansion continues but warned the central bank has no "rulebook" for dealing with trade conflict.

Trump selected Powell to take over Fed leadership but has heaped constant criticism on him for his handling of the policy, even speculating about whether he may be a bigger "enemy" than Beijing.

With many of the world's central banks cutting rates amid signs of flagging economic growth, Trump says the Fed is putting the United States at a disadvantage.

He also has complained about the Fed's efforts to reduce its massive holdings of securities, that were built up during the 2008 global financial crisis after rates were cut to zero in an attempt to shore up the ravaged economy.

"We have the great currency, power, and balance sheet," he tweeted.

While the Fed is not expecting a recession, trade frictions, as well as slower global growth and persistently low inflation, are among the "significant risks" that policymakers are watching, the Fed chair said during a conversation at the University of Zurich on Friday.

The US economic landscape has shifted this year, as business investment has weakened noticeably, manufacturing has fallen into decline and job creation has slowed.

And with other world economies slowing, the US dollar has strengthened as investors find a safe haven in purchases of US assets like government debt.

The stronger dollar tends to make US exports more expensive.

The Fed chair noted, however, that unemployment had remained near historic lows for about 18 months while wages were rising, fueling consumer spending.

Powell, whom Trump promoted to Fed chairman last year, has reiterated that he and his Fed colleagues ignore such comments when they set monetary policy.