President Trump’s latest attack on the Federal Reserve has him calling central bank officials “boneheads” for not cutting interest rates to zero or lower to boost the slowing economy.
Wells Fargo Securities’ senior economist Sarah House calls the president’s tweet “irresponsible.”
“If you look at where the overall economy is, fortunately we’re not in a position where we need to drive down the fed funds rate all the way to zero,” House told Yahoo Finance’s “The First Trade.”
Yahoo Finance senior columnist Rick Newman says the president is the real “bonehead,” calling his Fed tweets “ignorant and alarmingly out of touch with what’s going on.”
“You cannot refinance the nation’s debt,” Newman said. “These are public securities that investors count on. There’s $17 trillion worth of U.S. securities out there, pension funds, savings plans, ETFs. You can’t go buy that up and issue new debt at a lower price.”
....The USA should always be paying the the lowest rate. No Inflation! It is only the na?veté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of “Boneheads.”
— Donald J. Trump (@realDonaldTrump) September 11, 2019
Are zero interest rates the answer?
In recent years, slow economic growth has forced central banks in Europe and Japan to set negative interest rates. In that scenario, borrowers actually pay the bank to hold their money, giving people little incentive to save.
House said Trump’s tweet was most likely in response to reports that the Fed’s European counterpart, the ECB, is expected to cut short-term interest rates at Thursday’s policy-setting meeting to - 0.5% and implement a new round of quantitative easing to help jumpstart Europe’s flailing economy.
“I think he’s just trying to deflect from the real weakness in the economy, which is stemming from the trade situation,” House said.
Zero interest rates have historically been viewed as an emergency measure usually taken to help an economy climb out of recession. Economists worry that Trump wants the Federal Reserve to take these steps when we’re not in a recession, leaving the central bank few, if any, tools to combat a downturn in the future.
“[Trump] inherited a good economy,” said Newman, “and there are signs it’s slowing, but he wants to basically take all the stimulus measures you would use during a recession and use them now, and we know this is just to pump up his re-election bid.”
“Inflammatory” tweets
Keith Fitz-Gerald, chief investment strategist at Money Map Press, told Yahoo Finance that the president’s latest Fed tweets are “inflammatory” and “provocative.”
“I think he wants to force a discussion that the Fed and legions of traditional economists don't want to have... about why the Fed is repeatedly off the mark and why its actions have caused one crisis after another rather than solved them,” he said.
Fitz-Gerald doesn’t believe zero interest rates are a good idea, but cautions investors to think rationally if it happens.
“I get concerned as an investor because the march to zero forces people to take bigger risks with their money for the same or even less of a return,” he said. “This makes investing in only the best companies – meaning those with real businesses, growing revenues, real profits and savvy executives – even more of a priority than ever before. The worry I have is that many investors will find out the hard way (again) that they've been speculating when they should have been investing.”
Alexis Christoforous is co-anchor of Yahoo Finance’s “The First Trade.” Follow her on Twitter @AlexisTVNews.
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