Why Trump Might Be Right About Negative Interest Rates

Money for less-than-nothing, credit for cheap.
Photo: AP/Shutterstock

Donald Trump is not known for the keenness of his macroeconomic insights. Throughout his time in office, the president has simultaneously insisted that he is an expert in global trade and that a tariff is a tax that foreign governments pay to the United States in order to sell their goods on the American market.

So when Trump called for the Federal Reserve to to “accept the GIFT” of negative interest rates on Tuesday, a layman might have reasonably interpreted his proposal as the cockamamie fantasy of a certified crank. But the idea that America’s central bank should set benchmark interest rates below zero — which is to say, that it should start taxing the reserves of commercial banks instead of paying interest on them — is not peculiar to Trump. In fact, many respected economists believe that the U.S. should embrace the policy, which is already in effect in Europe and Japan. Further, as of earlier this week, Wall Street investors were betting that the Fed will bring interest rates below zero by mid-2021 in order to promote recovery from the coronavirus crisis.

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