Following this week’s interest rate cut, U.S. President Donald Trump blasted Federal Reserve Chairman Jerome Powell and his fellow Federal Reserve officials as having “No guts, no sense, no vision!” and further that Powell was a “terrible communicator”. OK, we get the idea that Trump did not agree with Powell et al, but why? Trump had been arguing for a larger rate cut, complaining that current interest levels in the U.S. put the country at an economic disadvantage relative to countries with lower rates. Since it costs more to borrow in the U.S. relative to other countries, the higher interest rate impedes business and weighs on U.S. economic activity. Regardless of one’s opinion of Trump’s social skills and manners, he does have a point. The chart below, for example, shows the 10-year government bond yields for the U.S. and some major European competitors. Germany and Switzerland already have negative interest rates, the UK appears to be headed that way, while the U.S., at 2%, seems way out of step – and at a disadvantage (at least according to the President).
"No guts, No sense, No vision!"
| September 23, 2019