US central bank Lowers interest rates Again. The US central bank has reduced interest rates. It is the second time in such a short time that such a reduction takes place.
It is a reduction of 0.25 percentage point, the same as in July 2019.
In the ten years before that, the bank never took such a step.
The reduction should help the economy, said bank president Jerome Powell.
For example, exports would be disappointing, just like business investments.
The most important interest rate now comes to a bandwidth of between 1.75 percent and 2.0 percent.
The policymakers of America’s most important bank were divided about what the interest rate policy should look like in the coming period.
Of the seventeen policymakers, five saw no need for an interest rate step.
Five others found a reduction of a quarter of a percentage point sufficient for the remainder of this year.
The remaining seven wanted a reduction of half a percentage point.
The quarter percentage point that is now being dropped is, therefore, a compromise.
Borrow money cheaper
By lowering interest rates, the Fed makes it cheaper for banks to borrow money.
The idea behind this is that, in turn, banks can lend money easily and cheaply,
which makes it easier for companies to invest and therefore gives the economy a boost.
It may seem strange that the Fed is now deciding to lower interest rates.
The US economy is operating at full speed.
However, the extra incentive was expected.
The economic outlook is becoming more sombre, partly due to the continuing trade war.
Moreover, the pressure on the Fed has been very high.
President Trump leaves no opportunity unused to insist that the US central bank does not do enough to boost the economy,
and last week the ECB also decided to launch a major new stimulus package.
Stock Market Analysts are not surprised by the decision to lower interest rates again.
“Trump asks, the Fed delivers. I am not surprised that the Fed continues to lower interest rates,
given the pressure, but I am curious about the explanation.
I also wonder if it will help the US economy to avoid a recession.
Is mainly uncertainty that bothers consumers and companies.
A slightly lower interest rate does not remove it.
This move by the Fed can even increase that uncertainty. “
The step of the Fed, however, does not seem to be enough to please President Trump.
He prefers to see a zero interest rate or a negative interest rate, and he announced several times.
If that goal is achieved, the United States must refinance the national debt.
“The costs of the interest payments could then be a lot lower, while we can fix the loans for longer”, he tweeted this month.
After the announcement of Powell on Wednesday evening, Trump immediately climbed into the Twitter pen again.
“Jay Powell and the Fed have failed.
They have no guts and no vision,” the president believes.