قالب وردپرس درنا توس
Home / Business / What are negative interest rates, and why does Trump want them?

What are negative interest rates, and why does Trump want them?



During one of its most important meetings in recent history, the European Central Bank announced on Thursday a sweeping round of stimulus to boost the EU's stuttering economy, reducing interest rates to the lowest level ever.

The ECB said it cut interest rates by 10 basis points to -0.5 percent, from -0.4 percent, and drew the ire of President Trump, who had urged the Federal Reserve in a tweet earlier this week to follow suit and drop interest rates to zero – or possibly even below zero.

"The Federal Reserve should get our interest rates down to zero, or less, and we should then start refinancing our debt," Trump tweeted Wednesday. "INTEREST COSTS CAN BE INCREASED ON THE WAY, WHILE ATTENTIONLY EXTENDING THE CONCEPT.

To do so, he said, would be possible because of the country's "great currency, power and balance."

He reiterated his complaint on Thursday, saying that while the ECB acted swiftly to protect its economy from uncertainty surrounding the US trade war and Brexit, the Fed "sits and sits. They get paid to borrow money while we pay interest! "

The US central bank lowered the benchmark interest rate in July for the first time in nearly a decade, citing" global economic outlook as well as dampening inflationary pressures. "At that time, Fed officials did not say they expected further cuts, but warned that it was not the beginning of an aggressive interest rate cut series.

However, since then, global economic conditions have weakened significantly: Production contracted in the US for the first time once in three years, the spread between two- and 1

0-year government rates reversed, a regular harbinger of an imminent recession, and US employment data suggested that the labor market was becoming softer, all amid increased US-China trade tensions.

JPMorgan and Chase CEO Jamie Dimon that the nation's largest bank is preparing for the possibility of rates falling to zero.

MOTHER OF FOXBUSINESS.COM …

"I don't think we want zero prices in United States, but we're thinking about how we can be prepared for it as a normal risk management course, "he said during a Question and Answer at Barclays Global Financial Services Conference on Tuesday. 19659002] Although Wall Street largely expects the Federal Open Market Committee to make another quarterly cut during next week's meeting, borrowing costs will almost certainly remain well above zero (currently, the area is set between 2 percent and 2, 25 percent) in the short term.

But a recession could eventually push the Fed to send prices – which have historically remained low in the wake of the 2007 recession – into negative territory as they gradually trim over the next few years.

Normally, banks pay depositors an interest to store their money in the bank. But when interest rates become negative, the opposite happens: Depositors, like the Fed, have to pay the banks to save their money instead of getting paid. Negative interest rates have historically been used as a drastic means to spur growth in times of economic downturn.

However, for borrowers, negative interest rates can be a good thing because it is likely to mean a very low monthly interest cost for the home and car buyers. Even a slightly lower rate for both can mean thousands of dollars in savings for consumers. Of course, because negative interest rates usually occur during the recession, they are not always effective in raising spending because fewer people are willing to take out loans.

CLICK HERE TO READ MORE ON FOX BUSINESS

And for pensioners and other Americans who depend on accrued interest from their savings, that's bad news. That's because some banks and credit unions want to increase the savings rate during Fed trips, making it a good chance for consumers – especially pensioners living off their savings – to earn more.


Source link