Trump calls for Fed 'boneheads' to slash interest rates below zero

VIDEO: REUTERS

WASHINGTON (NYTIMES) - President Donald 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, 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."

Trump continued to criticise his handpicked Fed chairman, Jerome Powell, saying "it is only the naivete of Jay Powell and the Federal Reserve that doesn't allow us to do what other countries are already doing."

He concluded by calling Powell, whom he nominated to head the central bank in 2017, and his colleagues "boneheads."

Trump's request is extraordinary for several reasons. The US 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 penalised 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 is 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.

The timing of 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 per cent 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 Trump's trade war is combining with Brexit jitters and a global manufacturing slowdown to threaten growth in many nations.