On Wednesday, President Trump attacked the Federal Reserve, calling for the central bank to pay interest rates to zero or even push them into a negative territory, claiming he wanted this change. to make it cheaper to refinance government debt.
Trump has complained for weeks that some European governments have taken negative interest rates, he feels unfair and puts the United States at a disadvantage. But Wednesday was the first time he asked the Committee to do the same, pushing for a change that would be unusual in policy that could expose unknown forces to the State's economy. United.
His instructions were delivered in tweets early in the morning and an additional dose of vitriol came to them for Federal Reserve officers. He called them “Boneheads” out of without moving faster to lower interest rates at a time when he said inflation is low. There are five governors on the board at the FED. Trump appointed four of them, including Chairman Jerome H. Powell, who focused on many attacks in the White House.
“The USA should always be paying the lowest rate,” said Trump. “No inflation! Jay Powell is a shame and the Federal Reserve does not allow us to do what other countries are doing. Opportunity once in a lifetime that we are missing about he Boneheads. '”
Trump tweets come on disappointing job reports and a week before the next meeting at the board, when officials decide whether to charge rates. Trump has sent out his Fed hours of complaints over the past few weeks, putting up calls for him to reduce the rate of funds as the economic downturn has grown, but central bank officials are still divided. whether a small cut is needed even.
In July, the FED cut the first benchmark interest rate in more than ten years, lowering the fourth point, to just below 2.25 percent. At that time, Powell said that the central bank would do whatever it would to “keep the expansion,” but he stopped committing to further reductions.
The last time the felling rates were zero during the Great Recession, and never accepted negative rates, even during the 1930s when a quarter of the workforce was idle. Despite Trump's lack of abuse with the central bank, there is little sign of the current interest rates affecting the economy. “Credit conditions are as supportive as ever,” the National Independent Business Federation reported in its latest survey of small business owners. Likewise, a significant proportion of large banks eased loan terms, including the extension of larger credit lines to their customers, according to the latest Fed survey of foreign officers.
“The president is calling for measures that are essentially an emergency monetary policy at a time when unemployment is at a low 50-year rate, the US economy is doing better than his colleagues and is growing steadily. , ”Said David Wessel, director of the Hutchins Center for Fiscal and Monetary Policy.
The president's time to refinance almost $ 17 trillion in public debt is also outstanding and it is unlikely that they would make much money to the government. From the 2008 financial crisis, the government has extended its average maturity to nearly 69 months from around 48, according to Treasury Department. The current repayment length is over average in the last 40 years and close to the historic high achieved in 2001.
As investors grew more nervous about the global economy, they are pouring money into the US Treasurys, seeking assurances on guaranteed return and liquid markets. Federal government borrowing costs are the basis for the costs that were close to records: 1.7 percent interest to borrow money for 10 years and 2.2 percent for 30 years funding.
In the early 1980s, in contrast, the government was paying almost 16 percent for 10-year money.
Last month, the Congressional Budget Office slipped $ 1.4 trillion from the government's estimated interest payments in the next decade, saying it was hoping that borrowing costs would be lower than anticipated in May.
Government debt, which is now historically high, has spent more than $ 2 trillion on Trump's watch and is expected to increase by an extra $ 12 trillion over the last decade, according to CBO. That's because the government is spending much more than it introduces each year through taxes. The budget deficit, which is expected to exceed $ 1 trillion this fiscal year, has been reduced by the 2017 corporate and personal income tax cut and major spending sponsorship from Congress in recent years.
“We should be focusing more on reducing this debt by looking at creating that debt rather than refinancing that debt,” said William Hoagland, Senior Vice President of Bipartisan Policy Center and former Republican director. on the Seanad Budget Committee. “This is a clever way to talk about the big issue.”
In order to refinance the outstanding debt, Washington would first have to buy back existing treasury securities from investors, many of whom are trading above their face value, before placing lower rate bonds in their own right. place. “You are not saving anything,” said Mark Heppenstall, chief investment officer for Penn Mutual Asset Management, who manages $ 27 billion of investor assets.
In recent years, the Exchequer has capitalized low-lending costs by issuing 50-year or even 100-year bonds. Officers succeeded in resigning, fearing that the securities would prolong demand for other government debt. But among the talks that US officials are rethinking, Heppenstall said that he thinks there would be an interest in investors in longer-term securities.
These tweets also suggest that Trump's increased dissatisfaction about the strength of the US economy – his central argument for reconciliation in 2020. On Tuesday, Washington Post-ABC poll found that Trump's approved ratings have decreased and that 6 out of 10 Americans now retreat. within the next year. Trump attack the results in tweets later on Wednesday, saying it is a "phony suppression poll."
The European Central Bank is expected to announce deeper negative rates on Wednesday as a means of fueling inflation and securing growth in Europe as economies across the continental treaty – a slowdown in some from the trade war U-China year-China . But economists and policymakers are concerned that the negative rates of destabilizing the European economy through bank drainage are creating conditions for crisis.
The negative rates enable companies and governments to pay effectively to borrow money from global financial markets, and banks have to pay for the surplus reserves stored by the ECB. European banks paid nearly 21.5 billion euros to the ECB since it introduced negative rates in 2014, according to a report from Deposit Solutions, an open banking platform.
Negative rates are an unusual tool to stimulate the economy, as they feed into bank profits and some insurance companies and pension funds may find it impossible to earn enough money from their investments. meet obligations for policyholders and pensioners. Some insurers may fail them while banks are cutting back on lending, avoiding the fuel economy needed for growth.
Today, Japan and seven major European governments, including Germany and France, are able to sell bonds with negative results, as well as corporate items Nestlé and Sanofi, which give investors confidence that they could withstand recession.
The amount of this debt, issued as government or corporate bonds, has doubled since December and now stands at $ 15 trillion.
Earlier this morning, Trump sent an estimate from CNBC on China's move on Chinese goods that indicated that the trade war was more difficult than originally expected. The change involves goods as routes and pesticides and there was a sharp downturn in the trading war that the United States remains unchanged. But Beijing has not moved to exempt important goods such as agricultural products, which Trump says are central to dealing.
More exemptions could be announced in the coming weeks, Chinese Finance Ministry said in a statement.
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