President Donald Trump proposed to the Federal Reserve to lower interest rates with the goal of lowering the $23 trillion debt the US has incurred. He believes that the US' lending rates aren't competitive with other global markets. He believes we're two years late to begin this policy since inflation hasn't risen during that time. The current benchmark that the Fed sets is between 1.5-1.75%. He still complains about high rates even though they've lowered them 3 times this last year. During Trump's administration the national debt has risen to $23 trillion, a 16.4% increase. This is an example of an economic policy from class. Do you agree with Trump's proposal to lower interest rates more than they are now?
https://www.cnbc.com/2020/01/28/trump-says-the-fed-should-cut-rates-so-the-us-could-then-focus-on-paying-off-refinancing-debt.html
4 comments:
I agree with cutting rates, but I don't understand the logic; the $23 trillion debt is a symptom of the inability of the government to balance the budget every year, and continues funding from debt at the national level. Would cutting rates help? Maybe. What would actually help? Cutting programs or raising taxes, as you would learn in any macro class. Problem and solution do not match up here.
I belive that consistently continuing to lower interest rates might take its toll on the economy in the near future. This could have an adverse impact on inflation, causing prices to increase due to encouraged consumer spending and borrowing. Additionally, the lowering of rates for the fourth time might impact consumer confidence to spend, since they might fear economic instability in the future. Additionally, with increasing debt, cutting interest rates does not support the end goal of finding a way to manage the large trade deficit.
By cutting interest rates, this would be an expansionary policy. That being said, it will cause inflation and increase the money supply. This will not cause the $23 trillion debt to decrease in the long run. Continuously lowering interest rates will not solve our debt problem.
I could be incorrect, but this is the first time I have seen President Trump try to fight against the magnificent debt the US faces. I know that he has expressed interest in cutting interest rates for some time now, so this concerns me that this is potentially just another attempt at doing that, this time from a different direction. I don't think this request from POTUS would be an effective one, at least not at cutting the debt.
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