JAKARTA (TheInsiderStories) – United States (US) President Donald Trump again lashed out at the Federal Reserve (Fed), criticizing the institution for its monetary policies, while also calling for negative interest rates. The president states his new attacks in his address at the World Economic Forum in Davos, Switzerland on Tuesday (01/21), even as he touted the state of the US economy.
Trump also spoke about the US being forced to compete with nations that are getting negative rates, most notably the European Central Bank (ECB) and the Bank of Japan (BoJ). That means sovereign yields in Japan and Germany are now trading below zero, compared to US Treasury yields and Federal Reserve overnight lending rates that remain high—putting the US at a disadvantage to the rest of the world, according to Trump.
Trump took his biggest swipe yet at the Fed, saying that his economic achievements, which have helped the US remain “by far the strongest economic power in the world,” came despite the central bank’s policies holding back the US economy.
Several big central banks around the world have adopted negative interest rates over the past year in order to combat low inflation, most notably the ECB and the BoJ, Trump said, making his country being forced to compete with nations that are getting negative rates: “They get paid to borrow money, something I could get used to very quickly,” he said. “Love that.”
Touting his bilateral trade deals and financial deregulation, Trump said that “we still have the best [economic] numbers that we’ve had in so many different areas,” even despite the fact that the Fed has “raised rates too fast and lowered them too slowly.”
The Fed hiked interest rates four times in 2018, before then cutting rates three times in 2019. The central bank’s officials left interest rates unchanged in their final meeting of 2019, following three straight rate cuts earlier that year. The Fed has now adopted a “wait-and-see” approach, signaling that its policy will remain on hold through 2020, with no interest rate cuts or hikes planned for this year.
That means the Fed will look to stay on the sidelines in an election year, with Fed Chair Jerome Powell indicating that “the current stance of monetary policy likely will remain appropriate.” The Fed’s first two-day policy meeting this year will take place from January 28 to January 29, 2020.
Markets largely agree with the Fed’s broadly neutral outlook, at least for now: Federal-funds futures for the next few meetings show an 87 percent chance that interest rates hold steady at the current 1.5 percent to 1.75 percent range. In the second half of 2020, however, futures show that the Fed may need to cut rates again to support the economy’s record-long expansion.
This isn’t the first time Trump has praised negative interest rates while criticizing the Fed’s monetary policy. As early as last week, at the phase one-China trade deal signing, he said the idea of negative rates was “incredible,” and that it bothers him that Germany and other countries “are getting paid to borrow money.”
While Trump’s attacks on the Fed and its chairman, Powell, have become common in recent years, his critical comments reportedly startled some in the audience at Davos. The president has repeatedly criticized the Fed’s monetary policy, arguing last year, for instance, that to help boost the US economy, rates should be reduced to “ZERO, or less.”
A negative interest rate scenario—which is already playing out in Europe and Japan—would effectively give borrowers the advantage over lenders and effectively put taxes on bank deposits.
Written by Lexy Nantu, Email: firstname.lastname@example.org