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The Federal Reserve should cut US interest rates to “zero, or less,” said President Donald Trump in a tweet this morning. Lower rates would give the country the chance to refinance its debt pile at lower rates, Trump said.
(The United States does not refinance its debt this way. Lower rates would, however, make it cheaper for the United States to borrow in the future.)
What Trump is proposing would be extreme: The Fed didn’t even take rates into negative territory in the aftermath of the 2008 financial crisis.
The United States has some $70 trillion of total public and private sector debt. And a debt pile like that comes with a hefty interest bill. According to research from the Institute of International Finance, a 1% rate cut by the Fed could reduce the US interest burden by $20 to $25 billion per year.
Trump has long called on the Fed and Chairman Jerome Powell to lower rates to boost the economy, citing low rates in other countries as proof that America is lagging behind. The European Central Bank, for example, has not yet raised rates since slashing them to ultra-low levels in the wake of the European sovereign debt crisis. The ECB is giving its policy update tomorrow.
But the US economy remains stronger than those of its peers. It does not need interest rates as low as Trump might like them. Even though the pace of growth in America is expected to taper some into the end of the year, it continues to outpace European countries.
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