Trump says the “boneheads” at the Fed should get interest rates to zero

Trump says the “boneheads” at the Fed should get interest rates to zero

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President Trump renewed his criticism of the Federal Reserve Wednesday, and called for lower interest rates, saying that rates should be reduced to zero or lower and that the US should refinance its debt.

Current interest rates: As of July 31, the federal funds rate is between 2% and 2.25%. Marketers expet further reductions – one by the end of the year and one in 2020.

Negative interest rates might lead to a recession. "Then what?" asks Mark Zandi, chief economist at Moody’s Analytics. He says the capital flow could be at risk and banks could be punished in the process. Reuters reports below-zero interest rates do little to boost economic growth.

"If we ever went to negative interest rates, the money would stop coming into the United States and it would start flowing to wherever investors could find reasonable return that was positive. That would slow the growth of the private sector. It’s definitely uncharted territory. It’s a bold idea. On balance, I think it would be harmful," said banking analyst Dick Bove at Odeon Capital Group.

Refinancing debt: While the president has previously urged the Federal Reserve to lower interest rates, he hasn't suggested refinancing the debt of the country until now. The US currently has a total national debt of $22.5 trillion, $16.7 trillion of which is held by the public, according to CNBC News.

Under Trump, the debt has jumped 13% or $2.6 trillion, mostly due to the 2017 tax cuts that the Trump administration introduced.

Such a move could have unprecedented consequences and potentially harm the US economy, say experts.

"It’s not viable and could be a significant problem for investors, financial markets and ultimately the economy. The debt is not prepayable. There’s a contractual relationship the Treasury has with investors. This isn’t a mortgage, this is U.S. Treasury debt. I think it would be incredibly disruptive to financial markets, and interest rates would ultimately rise, not fall," said Zandi.

“From a theoretical standpoint, obviously it would be wonderful for the United States government over a period of years if it were to lengthen the maturities on debt that would have rates below 1%. It would certainly be beneficial to the United States government. Whether it would be beneficial to the United States economy is an open question," said Bove.

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