Trump urges the US Federal Reserve to bring in negative interest rates

Donald Trump has urged the Federal Reserve to embrace negative interest rates.

“Donald Trump is not known for the keenness of his macroeconomic insights,” says Eric Levitz in New York magazine. So when the US president urged the Federal Reserve to “accept the GIFT” of negative interest rates, you “might have reasonably interpreted his proposal as the cockamamie fantasy of a certified crank”. Nonetheless, futures contracts linked to interest rates are already implying that the Fed will cut its benchmark interest rate below zero by mid-2021.

Advertisement - Article continues below

Several major central banks have embraced negative rates, including the Bank of Japan and the European Central Bank. The latter “thinks its experiment has worked”, says Richard Beales on Breakingviews. “It reckons the policy has generated growth and inflation … and made its overall stimulus package work better.” But the heads of the Fed and the Bank of England say they favour other monetary-policy tools (although UK officials confirmed this week that they are looking at how negative rates would work). 

For all its reluctance, the Fed will eventually go down the same path, says Albert Edwards of Societe Generale. The “ridiculously strong” US dollar and the deflationary impact of such an overvalued currency will inevitably force it to take extreme monetary measures to drive down the exchange rate. With rates in the eurozone and Japan set to remain firmly negative, “it would simply be bonkers for the US not to compete on this playing field”.




Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019

For how long can stockmarkets ignore rising unemployment?

US unemployment figures are looking terrible – up to 20 million people have lost their jobs. But markets don’t seem to care. John Stepek explains what…
11 May 2020
US Economy

Coronavirus: America's central bank "goes nuclear" as politicians act

The US Federal Reserve, America's central bank, signalled that it would do practically anything to end the turbulence and help the American economy.
26 Mar 2020
US Economy

Apple’s coronavirus warning won’t be the last – but will markets care?

If one of the world's biggest companies is feeling the pain from the coronavirus, then presumably others are too, says John Stepek. That can only lead…
18 Feb 2020

Most Popular

UK Economy

What bounce back loans can tell us about how we’ll pay for all this

The government will guarantee emergency "bounce back loans" for small businesses hit by Covid-19. Inevitably, many businesses will default. And there'…
1 Jun 2020

This looks like the biggest opportunity in today’s markets

With low interest rates and constant money-printing, most assets have become expensive. But one major asset class hasn’t. John Stepek explains why com…
2 Jun 2020

These seven charts show exactly why you must own gold today

Covid-19 is accelerating many trends that were already in existence. The rising gold price is one such trend. These seven charts, says Dominic Frisby,…
3 Jun 2020