Donald Trump unleashed his most pointed criticism of the Powell Fed yet on Wednesday morning, just a week ahead of the central bank’s September policy meeting, which is widely expected to produce a second consecutive 25bp rate cut.
“The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt”, Trump said, explicitly calling for negative rates for the first time.
Earlier this year, the president appeared to allude to the desirability of negative rates in the US, but stopped short of overt exhortations. Trump has repeatedly referenced negative yields in Germany and seemed to be particularly vexed last month after Berlin’s historic zero coupon 30-year sale (which saw tepid demand, by the way).
Trump continued, resorting to all-caps to make his point. “INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term”, he shouted.
That would appear to be the President of the United States making the case for ultra-long issuance, something Steve Mnuchin’s Treasury began exploring again last month as 30-year yields dropped below 2%.
Generally speaking, the idea is shot down each time it gets floated, but Mnuchin has emphasized that the administration is at least some semblance of serious about a 50-year tenor or even a US century bond.
Analysts (not to mention TBAC) are highly skeptical. Although Treasury has always employed a “regular and predictable” approach to debt management and steered clear of trying to time the market with opportunistic issuance, BofA said last month that Mnuchin’s efforts to sound out the market again could telegraph a strategy shift towards issuance that’s “less regular and predictable, more market timed, and biased to proceed with ultra-longs”.
Getting back to Trump, he wasn’t done.
“We have the great currency, power, and balance sheet”, the president exclaimed. “The USA should always be paying the lowest rate”.
That, of course, isn’t true. America’s “balance sheet” (depending on how you define that) is deteriorating, as CBO’s latest budget projections made very clear. America is set to run trillion-dollar deficits going forward and it’s thanks (in part anyway) to Trump’s late-cycle fiscal stimulus including the tax cuts for corporations and the wealthy which, contrary to any supply-side rhetoric, are not “paying for themselves”. Germany, on the other hand, is so committed to fiscal rectitude that Berlin won’t even countenance deficit spending when a recession is knocking on the door and borrowing costs are zero.
Trump drove the point home by calling the Fed a derisive name.
“It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing”, the president said, lamenting what he called “A once in a lifetime opportunity” that the country is “missing because of ‘Boneheads'”.
Not that they would, but those “Boneheads” are in the blackout period ahead of the September meeting, which means they couldn’t respond to Trump even if they wanted to.
Ironically, Donald Trump continues to make Bill Dudley’s point for him.
https://www.washingtonpost.com/politics/trumps-company-could-save-millions-if-interest-rates-fall-as-he-demands/2019/08/24/5e5df684-c5a9-11e9-b5e4-54aa56d5b7ce_story.html
Savers, retirees, pensioners and pension funds, banks, and lenders generally won’t appreciate the call for low-zero-negative rates.
I think hitler has to take into account that he’s basically yelling at the Fed to enter into CRISIS mode to thus PANIC mkts into perceiving that America, under his leadership is far worse off today than it was at the early stages of the GREAT RECESSION — so selling that to his bonehead zombie hillbilly retards makes perfect sense if you’ve had enough meth, but what about American banks, i.e., are they iliquid and frozen and unable to remain in business, are we that close to the end and is this really so F’ing serious that we have to crash all the credit markets?
Costs of Government Interventions in
Response to the Financial Crisis:
A Retrospective
Because the purpose of the Fed is to supply financial markets with adequate liquidity, which has some characteristics of what economists call a “public good” that cannot always be provided by the private sector, it is not clear that reducing the federal funds rate should be classified as a subsidy. Further, the Fed would argue that it was only providing credit because there was no private sector alternative during the crisis, and borrowing from the Fed fell relatively quickly in 2009 once financial conditions began to normalize
https://fas.org/sgp/crs/misc/R43413.pdf
To extend my ranting —
Think about that concept, that under trumps term as president, the economy has crashed and burned and is in worse condition than The Great Recession — that’s such a great counter for Powell to run with, i.e., he can come out in support of the trump economy saying that it had extended great progress from the Obama era and that America is actually doing fairly well and that there is no need to panic like its 2008 or 2009 or 2010 — in fact, look at the wonderful job trump has done … why in the world we we at the Fed want to PANIC and recreate an atmosphere like 2008, 2009, 2010 and call attention to how weak out banking system is today under trump’s leadership, why would the Fed play this game to make America look super weak, ready to collapse — why would we support the notion that banks are failing and frozen, etc., yadyadyada