US Central Bank Backs Chairman in Opposing Trump on Negative Rates
The Federal Reserve has decided that negative interest rates are not suitable for the US economy, backing its chairman who has been under pressure from President Donald Trump to institute such a rate regime, according to minutes from last month's meeting
WASHINGTON (Pakistan Point News / Sputnik - 21st November, 2019) The Federal Reserve has decided that negative interest rates are not suitable for the US economy, backing its chairman who has been under pressure from President Donald Trump to institute such a rate regime, according to minutes from last month's meeting.
"All participants judged that negative interest rates currently did not appear to be an attractive monetary policy tool in the United States," the Federal Reserve said on Wednesday in the published minutes of the US central bank's October meeting. "Participants noted that negative interest rates would entail risks of introducing significant complexity or distortions to the financial system."
On Monday, Trump said via Twitter that he had met Federal Reserve Chairman Jerome Powell to discuss a wide array of issues, including negative interest rates, the strength of the US Dollar and quantitative easing. Testifying before two congressional panels last week, Powell had said that a negative rate regime was inappropriate for a strong economy like the United States, which was into a record 11th year of growth.
The Federal Reserve's October minutes showed that its officials backed Powell's stance.
"Participants commented that there was limited scope to bring the policy rate into negative territory, that the evidence on the beneficial effects of negative interest rates abroad was mixed, and that it was unclear what effects negative rates might have on the willingness of financial intermediaries to lend and on the spending plans of households and businesses," the minutes read.
The Federal Reserve went on to say that some participants, in particular, cautioned that the US financial system was considerably different from those in countries that implemented negative interest rate policies, and that negative rates could have more significant adverse effects on market functioning and financial stability in the United States than abroad.
"Notwithstanding these considerations, participants did not rule out the possibility that circumstances could arise in which it might be appropriate to reassess the potential role of negative interest rates as a policy tool," according to the minutes.
Trump and Powell have been at odds over the past year on the best monetary course to manage the record-setting US economy.
In a speech to the Economic Club of New York last week, Trump criticized the Federal Reserve for raising rates too quickly last year and being too slow to drop them now. He said such action had stunted the growth of the stock market, which, nevertheless, hit a streak of all-time highs recently.