In recent weeks, the Federal Reserve and Donald Trump have gone to extraordinary lengths to prop up the United States economy.
The coronavirus pandemic and the lockdowns put in place for slowing its spread have ravaged the United States economy. Thus, since March, the Trump administration and Federal Reserve pumped a staggering $6 trillion into the system. Moreover, this was to keep interest rates on its feet. They are taking it back to record lows.
As the economic reality of a post-coronavirus world sinks in, now, the Federal Reserve and President Trump edge closer to negative interest rates. It is what Warren Buffet, legendary investor, has warned could have been extreme consequences.
Thus, negative interest rates mean that borrowers get money for taking out loans by the lender. Many central banks around the world adopted the strategy. It was led by the Bank of Japan and some European central banks.
Lenders must pay their central bank to hold their reserves if a central bank sets its overnight deposit rate to below zero. Charging fees for positive balances, banks can then pass those costs on to their customers.
Nonetheless, encouraging money to spent or invest, some economists believe negative interest rates could jolt life into flatlining economies. Nevertheless, others fear that policy of negative interest rates can keep an economy subdued.
On Saturday, in the United States at Berkshire Hathaway’s, there was an annual meeting. Journalists asked Buffets concerning the possibility of negative interest rates. Thus, he answered that they are doing things that they do not know about the outcome.
Donald Trump vs. Federal Reserve
Buffet also talked via webcast with the shareholders. He warned about the extreme consequences in case policy of negative interest rate will start to work. Moreover, Buffet said that negative interest rates are probably the most interesting question that he has seen in economics.
Buffet said that the puzzle of what rates of adverse interest will do to financial markets of the United States is the most crucial question in the world. He said it back in March. Moreover, Buffet admitted that he does not know the answer to it.
Trump said that he would be in favor of the Federal Reserve, adopting negative interest rates to compete with countries that already have them. He admitted this earlier in the year.
The United States President Donald Trump attended the World Economic Forum in January. There he said that they are forced to compete with nations that get negative rates. He added that it is something very new. It means that they get paid to borrow money. He said that it is something he can get used to very quickly.
Jerome Powell is Federal Reserve’s chair. He said that he does not think negative rates are an appropriate policy. Nevertheless, Trump is not shy when it comes to applying pressure.
In September, the United States President Donald Trump tweeted that the Federal Reserve must get our interest rates down to zero, or even less.
Trump said that it is only naivete of the Federal Reserve and Jay Powell that does not allow us to do what other countries are already doing.
- Trading Instrument