President Donald Trump called on the Federal Reserve on Wednesday to lower interest rates to "or less" to demand negative returns that he believes would help US curb credit costs and boost growth ,
The Federal Reserve Should If we lower our interest rates to zero or less, we should begin to refinance our debt. The interest costs could be lowered and at the same time the duration extended considerably. We have the big currency, power and balance …..
– Donald J. Trump (@realDonaldTrump) September 11, 2019
Trump repeated his frustrations with Fed Chairman Jerome Powell he believes that monetary easing was not aggressive enough given a global slowdown.
Negative interest-bearing global debt, currently estimated at $ 16 trillion, is bad for savers and bank profits, but it virtually eliminates the risk of default.
This also underscores the president's growing fascination with negative interest rates, a condition in which investors have sacrificed returns for safety reasons by paying them to bond issuers.
"Trump focuses specifically on bilateral trade balances and US exports. Marc Chandler, chief market strategist at Bannockburn Global Forex, said what he considers to be a frustrating improvement in the economy Economy and expected easing of central banks – The cost of borrowing has fallen dramatically.
Indeed, the Congressional Budget Office said last month that the federal savings in credit costs over the next 10 years have led to a reduction in CBO projections by a net $ 1.1 trillion, even if spending on Deficits are rising.
Bank of America-Merrill Lynch (BofA) recently noted that "the ubiquity of negative interest rates largely depends on the expected economic weakness. The markets have gone into risk-off mode and have continued to lower interest rates [major economies’] as investors pour into safe investments. "
The bank added that" there is a risk that … returns will continue their race to the bottom and ballooning. "A bond market bubble poses another risk to the global economy.
Faced with low inflation, the European Central Bank, the Swiss National Bank and the Bank of Japan all pledged to keep interest rates negative – a policy that Trump sees the Fed should replicate domestically.
A handful of experts believe that negative interest rates, at least in the short term, have a function.
Krishna Memani, Invesco's vice chairman for investment, wrote last week that the "ultimate goal of the central bank is to focus on growth and employment rather than ensuring that there are enough high-yield assets in the economy are to reach certain thresholds. "
The emphasis on higher returns" is a contentious issue, since asset returns are not possible to be generated without economic growth, "said Memani. This argument goes well with Trump's emphasis on the Fed having to do more to boost growth.
"If you classify the argument in this direction, you may realize why in a low-demand environment, low and even negative returns may be needed to support growth growth. Negative nominal returns are not magically different, "Memani added.
However, other analysts warned that sub-zero yields are a trap that is difficult to escape when growth and inflation return.
] "As long as banks do not pass on negative interest rates to private customer depositors, negative key rates put a strain on their profitability," according to BofA analysts. "The more negative the key interest rates, the greater the barrier for banks to achieve a positive net interest margin."
Former Fed Chairman Alan Greenspan warned that this was "only a matter of time" in the face of negative interest rates and you saw them too.
The US 10-year benchmark (^ TNX) return will be close to record lows below 2% and is expected to continue to fall.
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& # 39; The view has darkened & # 39; ;: JPMorgan predicts 3 further interest rate cuts
Trump tweets and market volatility have a "statistically significant" relationship, according to BofA.
Trump rips up Fed's Powell and asks companies to look for "alternatives" to China.
China could offload US government bonds – but not for the following reason
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