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At one of its most important meetings in recent history, the European Central Bank on Thursday announced a series of incentives to boost the stuttering economy of the European Union, by lowering interest rates at their lowest level ever.
The ECB has announced it has lowered rates by 10 basis points to -0.5%, against -0.4%, which caused the anger of President Trump, who had urged the US Federal Reserve in a tweet earlier this week to do the same and bring interest rates to zero – or maybe even below freezing.
"The Federal Reserve should reduce our interest rates to zero or less, and we should then start refinancing our debt," Trump said Wednesday. "THE COSTS OF INTEREST COULD BE REDUCED, while lengthening the term considerably."
This would be possible, he says, because of the "great currency, power and balance sheet of the country".
He reiterated his complaint Thursday, saying that even though the ECB had moved quickly to protect its economy from the uncertainties surrounding the US-China trade war and Brexit, the Fed "sits down," he said. sits and sits in. They are paid to borrow money, while we pay interest!
The US central bank lowered the benchmark federal funds rate in July for the first time in nearly a decade, citing "global economic outlook as well as moderate inflationary pressures". At the time, Fed officials had not announced they were anticipating a rate hike. cuts, but warned that this was not the beginning of a series of aggressive rate reduction.
Since then, however, global economic conditions have weakened considerably: the manufacturing sector contracted in the United States for the first time in three years; the gap between two- and ten-year treasury bill yields has reversed, a harbinger of an impending recession; and US employment data suggest that the labor market is softening, all in the context of increased trade tensions between the United States and China.
JPMorgan and Chase President and CEO Jamie Dimon said this week that the country's largest bank is preparing for the possibility that rates will drop to zero.
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"I do not think we will have zero rates in the US, but we are thinking of how to prepare for it as a normal course of risk management," he said at a meeting on Tuesday. questions and answers at the Barclays Global Financial Services conference.
Although Wall Street expects the Federal Open Market Committee to make a further quarter-point cut at its next week's meeting, borrowing costs will almost certainly remain above zero. range is currently set between 2 and 2.25%) in the short term. .
However, a recession could lead the Fed to send its rates, which remained historically low in the aftermath of the 2007 recession, in negative territory as they shrink in the next few years.
Normally, banks pay depositors an interest rate for keeping their money at the bank. But when interest rates become negative, the opposite happens: depositors, like the Fed, have to pay the banks to store their money instead of being paid. Negative interest rates have always been used as a radical means of stimulating growth in times of economic downturn.
For borrowers, however, negative interest rates may be a good thing, as this would likely involve a very low monthly interest cost for home and car buyers. Even a slightly lower rate for both systems can save consumers thousands of dollars. Of course, since interest rates are generally negative during a recession, they are not always effective in increasing spending because fewer people are willing to take out loans.
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And for retirees and other Americans who depend on accumulated interest rates on their savings, that's bad news. This is because some banks and credit unions will increase their savings rates during Fed hikes, which will give consumers, especially retirees living on their savings, a good chance of making more money.
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