President Donald Trump used once again his favorite communication outlet (Twitter) in order to express his feelings about the economy and the role of the Fed. The President’s position on interest rates is interesting and of course, it affects the market. Why he puts so much pressure over the USFR?
WHAT DID HE SAY?
“The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. Interest could be brought way down, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet…The USA should always be paying the lowest rate.”
Is this accurate? Maybe. For the White House, the economy is going great and there is no fear of an incoming recession. But at the same time, Trump pressures the Fed to cut down interest rates more and more so as not to stop economic growth. The possibility of reaching there (0%) is low right now but lowering it more might create problems.
WHAT DOES THE COUNTRY NEED RIGHT NOW?
This is not only a question about the United States, but the World Market. An incoming “Financial Bump” could be on its way and this cannot be only related to interest rates: They are at a historically low. One good example of this is mortgages, some numbers suggest there is a very interesting increase in the amount of “refinancing” cases. So how is this scenario behaving for the population?
If the rates keep going down, the central bank won’t have room to work with the financial system and control the situation. At the same time, we need the economy to keep moving and growing (it is already slowing down in many sectors). So if we have to find a direct relation for the slowing down of the market we can mention two situations.
The first one is Geopolitics. The world is going through a lot of changes. The Middle East is chaotic and this affects Oil Prices which affect Wall Street and the entire financial system. In terms of politics we are still waiting for the Brexit to be solved (or not), the EU is trying to survive (with not many options), South America is not helping and of course, China and the United States are engaged in a very confusing “Trade War”. All this is not helping.
The second one is “Economic Cycles”. We are coming from a big crisis that started in 2008 and now the effects of the rebirth are probably at their peak. Many industries are leading the US and other key markets while keeping the market strong like Technology and Information (even though not doing as well as before), Internet Publishing, Insurance, etc. But at the same time, most of the strongest ones are already dealing with some of the effects of fear like it is happening with Real Estate.
Donald Trump can skip the chances of a recession before 2020 Elections. Tariffs and this famous “Trade War” with China did not impact the core of the economy. Why? Most of the affected were manufacturing industries that managed to “find other sources” to work with China. At the same time, the US already transitioned to an economy based on the service industry. The President should focus on the global market, bring tranquility with China and show the world a little bit more confidence.
