It’s all about the debt.
Early Wednesday morning President Trump tweeted that the Federal Reserve should slash short-term interest rates to “zero or less,” referencing the fact that the European Central Bank currently holds overnight rates at negative 0.40%. Trump wants the Fed to drop rates so the U.S. can refinance its debt with lower interest rates. He also wants to issue bonds with longer maturities than the current 30-year term.
There has been widespread discussion of the U.S. issuing 50-year, or even 100-year (called “century”) bonds to lock in the current, exceptionally low interest rates. Trump called out Fed Chair Jay Powell for missing what Trump referred to as, “A once in a lifetime opportunity.”
“The USA should always be paying the … lowest rate. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”
With the ECB announcing monetary policy on Thursday, followed by the Federal Reserve and Bank of Japan next Wednesday and Thursday, it’s possible that rates fall further.
Contrary to the President’s tweets, the Fed doesn’t directly control long interest rates, which are the ones that determine the cost of long-term bonds, and the Fed doesn’t issue bonds for the U.S. government. That’s the job of the U.S. Treasury, which reports to the president. If Treasury Secretary Mnuchin doesn’t talk about issuing longer bonds soon, he might risk showing up in a Trump tweet storm.