US banks set to lower forecasts as falling interest rates bite

Donald Trump renewed his attack on the Federal Reserve, calling for the “boneheads” at the central bank to cut interest rates to zero or lower to enable the US to refinance its debt.The US president has been on a multi-month offensive against the Fed and its chairman, Jay Powell, saying that their slowness to ease monetary policy was harming the domestic economy, rather than any direct effects from his trade war with China.Mr Trump said, via a series of tweets on Wednesday morning that “the Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term.” He went on to say that the “USA should always be paying the lowest interest rate” and that in an environment with “No Inflation!” it was “only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. “A once in a lifetime opportunity that we are missing because of “Boneheads”, he concluded.The Fed cut interest rates in July for the first time since the financial crisis, bringing its benchmark interest 25 basis points lower to a range of 2.25 per cent to 2.5 per cent. In the weeks following the decision, Mr Powell said that fitting uncertainty stemming from the US-China trade war into the central bank’s policy framework was a “new challenge”, sparking a chicken-and-egg debate about how the Fed could react to or could influence economic conditions.Earlier this month, Mr Trump pointed to Germany “and so many other countries” for having negative interest rates, which helped keep a lid on their currencies and make their exports competitive.Yields on US Treasuries continued their downward trajectory after Mr Trump’s tweets this morning, but had recovered from their lows. The yield on the benchmark 10-year note was down 2.1 basis points at 1.723 per cent while that on the policy-sensitive two-year was down 0.2bp at 1.6661 per cent. Executives from some of the US’s biggest banks are this week telling investors how much their businesses are being affected by falling interest rates. Jamie Dimon, JPMorgan Chase chief executive, said at a conference in New York on Tuesday, “I don’t think you’ll have zero interest rates in the United States but we’re thinking about how do we be prepared for it.”


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