Investors overwhelmingly expect the Fed to deliver a 25-basis-point cut to interest rates as the global economy slows and the US-China trade war drags into its second year.
President Donald Trump continued assailing the Federal Reserve on Wednesday in a trio of tweets, saying the "USA should always be paying the lowest rate" and we are missing the opportunity of a lifetime because of the "Boneheads" at the U.S. central bank.
Lower interest rates are generally reserved for when the economy is in or nearing a recession, which makes the president's repeated calls for such low rates now particularly unusual. Trump has publicly berated US Fed chair Powell and the central bank for failing to loosen monetary policy fast enough. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn't allow us to do what other countries are already doing.
"People [would be] taking on more risk than they would otherwise because money is even cheaper", Luschini said. As far as managing the federal government's affairs, interest on outstanding US Treasury securities will be almost $400bn in the current fiscal year and rise to more than $914bn by 2028, according to the Pew Research Center.
The Washington Post, citing public filings and financial experts, reported last month that Trump could also personally save millions of dollars a year in interest if the Fed lowers rates, given the outstanding loans on his hotels and resorts. If the economy is as great as we've all been led to believe, then why the need for historically low rates, Moody's Analytics Chief Economist Mark Zandi asked.
Policy makers are widely expected to make another quarter-point cut when they next meet September 17-18, though hardly anyone sees interest rates headed to zero in the next two years, according to a Bloomberg survey earlier this month.
If the Fed cuts rates dramatically when the economy is still sturdy, consumers and businesses likely would view the move as a sign of trouble, prompting many to pull back spending and possibly leading to the growth slowdown they fear. The Fed's benchmark rate is now 2%-2.25% following a quarter-point reduction on July 31 - the first cut since the Fed lowered rates effectively to zero in 2008, during the worst financial crisis and economic downturn since the Great Depression.