https://www.usatoday.com/story/money/2019/09/12/interest-rates-what-zero-negative-rates-would-mean-you/2293676001/
https://www.cnbc.com/2019/09/11/trump-says-fed-boneheads-should-cut-interest-rates-to-zero-or-less-us-should-refinance-debt.html
Monday, September 16, 2019
Trump to cut interest rates
In a Twitter rant last week, Trump said that he wants the Federal Reserve to slash interest rates to zero or even below zero after a series of derogatory remarks about them. This was followed by a suggestion to refinance that had no precedence. These comments are problematic because refinancing could cause problems for investors, as he is treating the national debt like mortgage which would lead to an eventual rise in interest rates and instability in the markets. The question then is whether this would be beneficial to the US economy, especially in case of a recession, how would the overall impact be? Zero interest rates would decrease cost of borrowing, but at the price of making the U.S less competitive for capital investments, as the yield would be lower and the private sector would suffer as growth would slow down. This could also mean many Americans, especially senior citizens would suffer who depend on income from bank savings, and banks could possibly pass off the higher charges to consumers by raising overdraft fees etc. This would in hindsight not be worth lowering interest rates to a negative, and could cause more harm to the economy.
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Zero interest rates would pose many problems on the U.S. economy. As Amber mentioned, it could decrease the cost of borrowing but create a far drop in competitive edge for the economy. Especially if rates hit the negatives, far less investment would come in to the U.S. economy and investors would look elsewhere to find reasonable positive returns. If this were to occur it would most likely posing a harmful situation, yet we can't know for sure.
ReplyDeleteMaking interest rate zero is going to create problems for the US because people would rather invest where they can get a yield on their investments.
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