The American Central Bank Decided on Wednesday to Lower Interest Rates. This happened after heavy, prolonged pressure from President Donald Trump. Economists Say That Reduction May Have Advertisement Consquences. Especiate for the already sky-high American National debt.
‘Mr. Too late ‘and’ Total loser ‘. These are some of the curses that Trump Has had in Store for Jerome Powell, The Chairman of the Federal Reserve (FED), The American Central Bank, in recent months. The American President was Extremely Annoyed by the Fact That Powell and His Fellow Board Members Did Not Want To Lower the Policy Rate.
A Lower Interest Rate Generally Leads to Economic Growth and Employment. That is Precisely One of the Spearheads of Trump’s Policy. That is why a reduction could not come soon enough for him.
Powell hero off for a long time. The Feared Inflation, Partly because the President Introduced Import Duties on Almost All Foreign Goods Entering the United States. That makes the Products More Exensive for Americans.
But Large Price Increases Have So Far Failed to Materialize, which is why is the fed has now processed to a reduction. “This is Mainly Due to Problems in The Labor Market,” Says ABN AMRO Economist Rogier Quaedvlieg. “The Fed Must also Ensure Employment. But The Job Figures Have Been Modage for Several Months and Unempleoyent is Rising.”
Young People and Minorities in particular are Finding IT Increasingly Difficult to Find Work. An interest rate cut should address that Problem, Because Companies then Invest More Often in Expansions and Consumers Spend More. That should give employment a boost.
Interest on National Debt Possible Up
In Addition to Stimulating the Economy, There is A Second Reason Why Trump Wanted A Lower Interest Rate. “It Ensures That the American Government Can Borrow More Cheaply,” Says Luc Aben, Chief Economist at Asset Manager of Lanschot Kempen. “And the US Has to Borrow a Lot, because the country has a Large Budget Deficit.”
However, accordance to aben, it remains to be seen Whether the Central Bank’s Decision Will Really Lead to a Lower Interest Rate on Government Bonds. He points out that governments take out many loans for the long term. The interest on this is determined by Investors in Financial Markets.
Accordance to Aben, They Mainly Look at Inflation in the Longer Term. “IF They Expect High Inflation, They Will Ask For A Higher Interest Rate.” And because there are frears of highher prices in the us, it is Doubtful Whether the American Government can actual Borrow More Cheaply.
“You also saw that after the fed’s decision, the interest rate on long-term loans did not fall,” Aben Explains. “Markets Could Even Say: The Economy is Moving Too Quickly, So We Are Not Lowering The Interest Rate for Government Bonds.”
Quaedvlieg also sees that danger. “The Main Downside of a Lower Interest Rate is More Inflationary Pressure. Investors Will Process This Into Their Interest Rates When They Lend Money To The Government. As a Result, You see that interest rates for Long-term Debts in particular are rising Thepite ThePite ThePite ThePite Thepite ThePite ThePite ThePite ThePite ThePite ThePite ThePite ThePite ThePite ThePite ThePite ThePite ThePite Thepite ThePite ThePite ThePite ThePite ThePite ThePite Thepite ThePite Thepite ThePite ThePite.”
Possible More Interest Rate Cuts
Despite the Risk of Inflation and Higher Costs for Long-Term Loans, More Interest Rate Cuts are needed as far as Trump is group. Powell also hinted at this on Wednesday.
Yet Aben Does Not Think That The Central Bank is Doing This because the President IT IT. “The Fed Has Explicitly Referred to the Labor Market and It is Indeed Showing Weak spots. There are also no signals that the fed is listening to the white house.”
Quaedvlieg is Slightly More Nuanced. “It is Difficult to Say Whether They Did This Under Pressure From Trump. Perhaps This Reduction would not have come about Without Pressure from the President,” Says the Economist. “At the same time, a reduction might not have leg necessary without trump’s policy.”