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Is the US Heading for Negative Interest Rates?

The recent arrival of negative interest rates in Europe has caused a major stir in the financial world. At the time of writing, Denmark, Switzerland and Sweden have slipped into negative rates. Across in Asia, Japan’s figure is also below zero.

Could the US be the next country to introduce negative interest rates? The debate has recently opened up again after President Donald Trump tweeted that the “boneheads” at the Federal Reserve should be cutting rates.

What Did Trump Say?

Over two posts on Twitter, the President claimed that having substantially lower rates would allow the government to save money on the debt that it owes. Indeed, under his presidency, this debt has rocketed to a record high of $22 million, including social security accounts.

The President tweeted that the USA has the “great currency, power, and balance sheet”. He went on to type that they “should always be paying the lowest rate”. He also claimed that it is only the “naïveté” of Jay Powell and the Federal Reserve that is stopping the country from benefitting from what he calls a once in a lifetime opportunity.

Shortly afterwards, officials at the White House pointed out that the President is “looking at every tool available”, in an effort to lower the national debt.

How Have Analysts Responded?

This is a subject that sharply divides opinions. Many financial experts maintain that extremely low or negative rates should only be considered in the case of nations with very weak economic growth rates.

One of the risks with lowering interest rates so drastically is that it is seen to punish savers, as well as hurting the profits of the banks. On the other hand, it helps people to borrow more easily.

It has also been pointed out that the moves in Europe and Japan have caused market tensions. More importantly, the move to negative interest rates hasn’t yet been seen to achieve the goal of increasing growth and inflation in the countries where it has been implemented.

Some analysts suggest that the risks to the American economy are too great to take this action. Indeed, in the last month Trump himself said that he didn’t want to see negative interest rates.

What Will Happen Next?

Trade wars and other financial issues have led for calls to ease monetary policies to avoid a global recession. In this light, it is easy to see why subjects such as international debt recovery are now being so widely discussed.

Trump’s comments come at a time when it is expected that many of the central banks around the planet lower interest rates. It is believed that this is part of a co-ordinated global strategy that has been put in place to protect the economy.

However, it appears that in the US, the Fed will only be looking at a quarter of percentage point cut. The President is clearly calling for more dramatic cuts to be made quickly.

For the moment, it seems as though Trump won’t get his wish of seeing rates dropped in a more dramatic fashion. However, now that he has set his sights on cutting interest rates as low as possible, we are sure to hear a lot more about this possibility in the near future.