In the middle of the relentless pressure campaign of the White House in Jerome Powell, the chairman of the Federal Reserve, President Donald Trump not only demanded that the central bank lowers interest, but also reduce it to 1%.
The federal fund sentence is currently 4.25%-4.50%, which means that a reduction in this size would require a drastic step that would go far beyond the typical steps of the FED beyond a quarter (although it was shortened by half a point in September).
It is so extreme that Wall Street doubts that it would actually happen because it would trigger immense turbulence in the financial markets and in the economy.
“I do not think so Assets.
This is because the long -term returns of the state health insurance companies would address if bond investors in higher inflation expectations increase a price of 1% and increase the credit costs for consumers and companies.
In addition, an installment that is low is usually with an economic emergency like the Covid 19 pandemic or the big financial crisis.
Therefore, 1% companies can actually shock to ask whether another misfortune lurks around the corner, which causes them to lower and wait instead of expanding, warned Roach.
“As a big business owner who looks at prices to 1% or 2%, I definitely say:” What do you know that I don’t do it? “, He said.” So I will not react by increasing Capex and increasing i operation to the company. I will take care of what that signals. ”
A spokesman for the White House pointed out to Trump’s earlier comments that the FED can and should increase the interest again and again if inflation increases after cutting out tips.
For his part, Roach believes that there is probably space that the tariffs will finally fall to about 3.5% by the end of 2026 when inflation remains under control and that Powell does not increase interest rates as early as inflation has fallen after pandemic.
Similarly, Jay Hatfield, CEO of infrastructure capital advisors, accused gross incompetence too late to increase the interest rates, but also to pass the idea of the FED -SHING interest rate rates to 1%.
The returns of the Ministry of Finance would initially fall to 1%immediately after a reduction. However, as soon as the inflation indicators show higher, the Fed fund rate would increase to 4% to reduce the money supply and send the 10-year return to about 5%.
After a mini recession or a large withdrawal, the yield would be around 3.75%. “So it is a terrible economic policy to do that,” he said Assets.
A FED fund interest rate of around 2.75% -3% would not bring inflation into inflation or bring the economy into a downturn, but the tariffs where they are now would trigger a recession, Hatfield added. However, an interest rate of 1% would require a massive expansion of the money supply.
“It is absolutely a ridiculous idea and will cause a double -digit inflation,” he warned.
