WASHINGTON — President Trump urged the Federal Reserve to cut interest rates below zero, suggesting a last-ditch monetary policy tactic tested abroad but never in America.
His comments came just one day before European policymakers are widely expected to cut a key rate further into negative territory.
In a series of tweets, Mr. Trump said that “The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt,” adding that “the USA should always be paying the the lowest rate.”
Mr. Trump continued to criticize his handpicked Fed chair, Jerome H. Powell, saying “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.”
He concluded by calling Mr. Powell, whom he nominated to head the central bank in 2017, and his colleagues “Boneheads.”
Mr. Trump’s request is extraordinary for several reasons. The United States economy is still growing solidly and consumers are spending strongly, making this an unusual time to push for monetary accommodation, particularly negative rates, a policy that the Fed debated but passed up even in the depths of the Great Recession. It is also typical for countries with comparatively strong economies to pay higher interest rates, not the “lowest” ones.
Negative rates, which have been used in economies including Japan, Switzerland and the Eurozone, mean that savers are penalized and borrowers rewarded: Their goal is to reduce borrowing costs for households and companies to encourage spending. But they come at a cost, curbing bank profitability.
While it’s unclear how effective they have been as a policy tool — some research suggests negative rates could curtail lending — they are increasingly a reality in much of the world as central banks rush to support economic growth and investors look for safe assets.
The timing of Mr. Trump’s tweet is also significant. The European Central Bank is expected to cut a key interest rate to a record-low negative 0.5 percent and roll out additional stimulus measures at its meeting on Thursday, in a bid to shore up very-low inflation and waning growth in important economies like Germany. Central banks around the world have been lowering their policy rates, partly because Mr. Trump’s trade war is combining with Brexit jitters and a global manufacturing slowdown to threaten growth in many nations.
The American president has commented on foreign central bank rate moves before, tweeting in June that “they have been getting away with this for years,” when Mario Draghi, who heads the European Central Bank, indicated that officials might provide additional stimulus to shore up the eurozone economy.
The Fed itself has already cut rates for the first time in more than a decade in July and is poised to lower borrowing costs further as risks to economic growth loom. Mr. Powell and his colleagues lowered interest rates to a range of 2 percent to 2.25 percent at their July meeting, and they are widely expected to cut by another quarter of a percentage point at their meeting next Tuesday and Wednesday in Washington.
“The Fed has, through the course of the year, seen fit to lower the expected path of interest rates,” Mr. Powell said in a speech last week, adding “that’s one of the reasons why the outlook is still a favorable one, despite these crosswinds we’ve been facing.”
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