On Thursday, Donald Trump, the president of United States has called for the interest rates to be engineered to zero or less than zero by the Federal Reserve. Trump appealed for negative yields with the belief that it will help the United States in curbing the borrowing costs and stimulating growth.
Continuing to lash out at Federal Reserve’s policy on Twitter, the president said on the social media platform that as the economy of the world is facing the downside risks of the trade war between United States and China, the Central bank was missing out on an opportunity that came due to the low yields. The president even called the Central bank Boneheads for letting go of what he considers an opportunity that will come once in a lifetime
Trump’s frustrations with Jerome Powell, Fed Chairman were reiterated with the tweet. Powell, he believes has not been easing the monetary policy in a manner that is aggressive enough specially while there is a global slowdown that is going on.
While the negative rates concept seems attractive theoretically, effects of the negative rates are not as appealing in reality as they appear. The risk of default becomes nil virtually but the global debt at $16 trillion as per the current estimate is considered bad for those who save and therefore leads to an erosion in the profitability of banks.
It also again highlighted the growing fascination of President Trump with negative rates, which is a condition in which investors sacrifice yield for safety as they pay the issuer of the bond.
Economist believes that Trump being a property developer, he is thinking from the point of view of a buyer when it comes to negative rates.