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.