The Fed has probably frozen interest rates for years. It is doubtful that the US central bank would have the courage to lower it even further and make it negative. On the other hand, politicians demand further actions of this type. So today the US is facing a big dilemma.
Fed, interest rates and Donald Trump
President Donald Trump has long fought openly with the Fed to lower interest rates quickly and rapidly. He actually does it, because even the recent decisions of the US Central Bank, which has finally realized the dream of a White House resident, met with his complaining.
What is Trump playing? First of all, he wants to win the currency and trade war with China. For this he needs a very cheap dollar, which will support exports. In addition, cheap money and unprofitable deposits also stimulate internal demand. In the autumn, the next presidential election will take place in the USA. Trump – understandable! – wants to win them in reins.
The Fed itself cut interest rates to almost zero in March 2020. By the way, he began almost crazy printing of dollars – all in the name of fighting the crisis. For three months, it increased its balance sheet total from 4.2 trillion to over 7.1 trillion dollars. The Federal Reserve was buying everything from treasury, mortgage and corporate bonds to ETFs investing in debt securities.
Modern Monetary Theory in the USA
However, the appetites of politicians are greater. The Federal Open Market Committee (FOMC) is therefore thinking about what else to do to further loosen its loose monetary policy. The fact that this one is extremely loose already does not bother anyone now. It looks as if almost all supporters of the controversial Modern Monetary Theory sat in the Fed. This assumes an almost permanent reprint of the currency.
For now, FOMC has decided to keep interest rates. at the current level, i.e. in the range of 0-0.25 percent. The Committee “he expects to maintain the current level of federal funds rate until he is certain that the economy has recovered from recent events. “ Apparently, this is supposed to mean 2022 in practice.